Considering a dedicated education investment fund?

Setting up a dedicated education investment fund for your child or children can mean you’ll be better prepared, financially, when the school fee invoices come in.

So, instead of putting money aside in a savings account, contribute to a fund where your money is invested on your behalf.

In Australia, there are many different investment vehicles available to you. These include:

• Managed Funds: A type of investment fund that’s looked after by a fund manager, where your money and that of other investors is pooled together. It’s then used to buy assets such as cash, shares, bonds and listed property trusts.

• Investment Bonds: A long term investment offered by insurance companies and friendly societies. Investors’ money is pooled and invested according to the investment option chosen. There are tax advantages for higher income earners – as long as the investment is held for at least 10 years, and certain conditions are met.

• Term deposits: An account with a financial institution, where money is deposited for a set period of time. The interest rate is usually fixed for the term of the deposit, and is generally higher than a transaction account.

However, when considering a dedicated education investment fund, there is a purpose-built financial product worth investigating – aptly named an Education Bond.

What is an Education Bond?

An Education Bond is a tax-advantaged investment product that can help fund the education of one or more beneficiaries – typically family members or friends.

From pre-school through to adult education, Education Bonds can fund the full journey of lifelong learning.

Education Bonds can also be used for tax benefits, and to fund other life events.

So, with the cost of education rising at all levels, it’s wise to choose a dedicated investment product that delivers potentially greater returns, tax benefits and flexibility than other investment types.

How is an Education Bond taxed?

One of the main benefits of an Education Bond is its tax effectiveness.

With a Futurity Education Bond, for example, we pay tax on your ongoing investment earnings at a rate of up to 30% – so you don’t have to.

For other investment options, you could be forking out as much as 47% in tax – depending on your personal tax rate.

You can benefit when withdrawing, too. Because when you make a withdrawal to fund education from your Futurity Education Bond, you’ll enjoy the Education Tax Benefit. This means you’ll receive an extra $30 for every $70 withdrawn.

Another key benefit of an Education Bond is its ‘compounding power’ – which you’ll experience when you reinvest your investment’s growth. With Futurity, this happens automatically.

These benefits are only a few, among many, of Education Bond features that help you accumulate savings more quickly. All the more reason to set up a dedicated education investment fund that’s fit for purpose.

I’m listening.

So how does an Education Bond work in practice?

We invest contributions to your Education Bond on your behalf – but you own and control the bond itself.

It’s that simple.

The first decision you need to make is which type of Education Bond you need. At Futurity, we offer two:

1. Individual Education Bonds

Here, there’s one beneficiary (related or unrelated to the bond owner).

An Individual Education Bond suits a variety of family circumstances, including:

• Families setting up a bond for their only child.

• Families wanting to use multiple individual bonds to align with the different ages and goals of each of their children.

• Families who want to maintain confidentiality for the different arrangements they’ve set up for each of their beneficiaries (i.e. siblings, cousins, etc.)

2. Family Education Bonds

In these bonds, there are multiple beneficiaries. (Again – the beneficiary can be related or unrelated to the bond owner.)

This bond is the first of its kind – being specifically tailored to families.

It can be set up with an investment term of up to 99 years – so it can fund lifelong education and be transferred across generations.

You have the option to open multiple family bonds. Which means grandparents with large families, for example, can open a Family Education Bond for each family branch.

The ‘class’ of the Family Education Bond you choose is completely up to you. You could opt for the ‘family class’ (for those related by law or blood), or you could choose the ‘friends class’ (which accounts for friends, carers, employees and beyond).

Once you’ve decided on the class, you’ll need to establish your bond. You can do this by using the EdInvestor or the EdSaver process. Both involve specifying your ownership type and your regular contribution amount.

After that, it’ll be time to grow your bond!

Your balance grows whenever you make savings or lump sum contributions – and when your selected investment options accrue net earnings.

And that’s just the beginning.