Introduction
University education is expensive – tuition fees (currently up to £9,250 per year in England), maintenance loans, accommodation, and living costs. While student loans cover tuition and some living costs, many parents and grandparents want to help. Saving early for a child’s university costs can reduce the amount they need to borrow (student loans have relatively low interest rates, but reducing debt is still beneficial). This guide covers the main savings vehicles for university education: Junior ISAs, Child Trust Funds, bare trusts, designated accounts, and using your own ISA or pension. It explains the tax benefits and drawbacks of each.
Based on rules as of July 2026. Always verify current rates with official sources.
Understanding the Student Finance Context
Before saving, understand how student finance works. In England:
- Tuition fee loan – covers tuition fees up to £9,250 per year. Repayments are income‑contingent (9% of income above the repayment threshold, currently about £27,295 for Plan 2). The loan is written off after 30 years (Plan 2) or 40 years (Plan 5). Most graduates do not repay the full loan, so using savings to pay tuition fees directly is often poor value – you are better off using the loan and saving/investing your money instead.
- Maintenance loan – helps with living costs. The amount depends on parental income. If you have high savings, it may reduce the maintenance loan entitlement (because the government assumes parents will contribute). This is a key consideration.
Given these rules, saving for university is primarily about:
- Providing extra living money that the maintenance loan does not cover.
- Reducing the amount the student needs to borrow for living costs (which is a real debt, unlike the tuition fee loan which is often not fully repaid).
- Offering flexibility for non‑loan expenses (accommodation deposits, textbooks, travel, a laptop).
Option 1: Junior ISA (JISA)
A Junior ISA is a tax‑free savings or investment account for a child under 18. The child cannot withdraw money until age 18, at which point the account becomes an adult ISA in their name.
Annual allowance (for illustration, 2026/27): £9,000. You can split between Cash JISA and Stocks and Shares JISA.
Tax benefits: All interest, dividends, and capital gains inside the JISA are tax‑free. The child does not pay tax on withdrawals (since it is an ISA).
Who controls it: The parent or guardian opens and manages the account until the child turns 18. After that, the child has full control.
Pros: Tax‑free growth, simple, large allowance. Forces the child to keep the money until 18 (cannot be withdrawn early).
Cons: At 18, the child gains full control. They could spend the money on a holiday or a car instead of university. Some parents are uncomfortable with this. Also, the JISA counts as the child’s asset for maintenance loan assessment – reducing their loan entitlement.
Best for: Parents who trust their child to use the money responsibly for university (or other adult expenses) and who want tax‑free growth.
Option 2: Child Trust Fund (CTF)
Child Trust Funds were available for children born between September 1, 2002 and January 2, 2011. The government contributed an initial payment (vouchers). CTFs work similarly to JISAs – tax‑free, access at 18.
If your child has a CTF: You can continue contributing (up to the annual allowance, which is the same as JISA – £9,000). You can also transfer the CTF to a JISA (recommended, as JISAs often have lower fees and more investment choices).
Pros and cons: Similar to JISA.
Option 3: Bare Trust (Designated Account)
A bare trust (also called a designated account) is an account you open in your name but “for” the child. Legally, the money belongs to the child, and they have the right to demand it at age 18 (in England and Wales – 16 in Scotland). You manage the account as a trustee.
Tax treatment: The income (interest, dividends) is taxed as the child’s income. If the child has no other income, they can use their Personal Allowance (approx £12,570) and Personal Savings Allowance (£1,000/£500) – meaning most interest is tax‑free. Capital gains are also taxed as the child’s, with the child’s annual exempt amount (approx £6,000). For most children, this means no tax.
Pros: You retain control until the child reaches the age of majority (18 in England). The money is still legally the child’s, but you decide when to give it (though the child could demand it). The tax treatment is often tax‑free for small amounts.
Cons: More complex to set up (you need to register a bare trust with HMRC). The child could theoretically demand the money at 18 and spend it unwisely (same as JISA). The money counts as the child’s asset for maintenance loan assessment.
Best for: Parents who want slightly more control than a JISA (you are a trustee, but the child is the beneficial owner). Not widely used; JISA is simpler.
Option 4: Save in Your Own Name (Designated Savings or ISA)
Many parents simply save in their own name – in a Cash ISA, Stocks and Shares ISA, or general savings account – and plan to give the money to their child when university starts.
Tax benefits: If you use your ISA allowance, the growth is tax‑free. If you use a general account, you may pay tax on interest (if you exceed your Personal Savings Allowance) or capital gains (if you exceed the annual exempt amount).
Pros: You retain full control. The money is not legally the child’s, so it does not affect maintenance loan assessment (since parental assets are assessed, but the maintenance loan calculation uses parental income, not assets – except in some cases where significant savings reduce entitlement? Actually, for maintenance loan, parental income is the main factor, not parental savings. However, large parental savings could be expected to be used for the child, but the official calculation does not directly reduce the loan based on savings – it uses income. Check current rules. But if you save in your own name, the money is yours – you can decide how much to give and when.
Cons: You may pay tax on growth if you exceed allowances. You might be tempted to use the money for other purposes (e.g., home improvements). If you die before the child starts university, the money may be subject to Inheritance Tax (though leaving it to your child in your will could be tax‑free within the nil‑rate band).
Best for: Parents who want full control and flexibility, and who have ISA allowance available.
Option 5: Premium Bonds (in Your Name or Child’s Name)
Premium Bonds are a government savings product where instead of interest, you enter a monthly prize draw. Prizes are tax‑free.
Holding in a child’s name: A parent or grandparent can buy Premium Bonds for a child. The child owns the bonds, and any prizes are tax‑free. The child can cash them in at any time (with parent’s consent if under 16).
Pros: Tax‑free prizes, fun (the chance of winning). The child does not pay tax. Does not count as income for maintenance loan (it is capital, not income – but capital can affect some means‑tested benefits, not student loans).
Cons: No guaranteed return – you could win nothing. The average prize rate is typically lower than a good savings account. The child can cash in at any time (including before university) – less locked in than a JISA.
Best for: Grandparents who want a “fun” gift, or as a small part of a larger savings plan.
Option 6: Using a Pension for University Savings? (Not Recommended)
Some people consider using a pension to save for a child’s university. You can open a junior pension (SIPP for a child) – contributions receive tax relief (20%) even if the child has no income. However, the money cannot be accessed until the child is 57 (rising). That is far beyond university age. Do not use a pension for university savings. Use the other options.
Impact on Student Finance (Maintenance Loan)
The maintenance loan is means‑tested based on parental income (not assets). However, if the child has significant savings in their own name (e.g., a JISA with £50,000), some of that savings may be expected to be used for living costs, potentially reducing the maintenance loan entitlement? Actually, the current system does not directly reduce the loan based on the child’s savings – it is based on parental income. But if the child has substantial savings, the government may assume they can contribute more. The rules are complex and change. General advice: If you are saving a large amount (over £10,000) in the child’s name, check the current student finance rules. In practice, most families do not lose significant loan entitlement from moderate savings (under £10,000). For large savings, consider keeping the money in your own name instead.
Option 7: Family Loan or Gift
You do not have to save in advance. You can simply give money during university – either as a gift or a loan. There is no tax on cash gifts (unless you die within 7 years and the total gifts exceed the nil‑rate band – see Inheritance Tax rules). For most families, gifting up to £3,000 per year is tax‑free for IHT (annual exemption). Larger gifts are potentially exempt if you live 7 years.
Pros: Simple, no need to save in a special account. You retain control until the moment you give.
Cons: You may not have the cash available when university starts (if you have not saved). You cannot benefit from tax‑free growth over many years.
Recommended Strategy by Age of Child
Child under 10 (many years until university): Use a Stocks and Shares JISA. Invest in a low‑cost global tracker. The long time horizon (8–10 years) allows equity growth. Review every few years. When the child is 14–15, consider moving to cash to protect the capital.
Child aged 10–15 (5–8 years away): Consider a mix – some in a Cash JISA (or Cash ISA in your name), some in a Stocks and Shares JISA with a gradually reducing equity allocation. As university approaches, shift to cash.
Child aged 16–17 (1–2 years away): Use a Cash JISA or a savings account in your own name (or a Cash ISA). Avoid investment risk – you need the money soon.
If you have not saved at all and university is imminent: Do not panic. Student loans exist. You can gift money during university from your income or savings. The most important thing is to talk to your child about budgeting and the cost of borrowing.
Key Takeaways
- Junior ISA (JISA) – tax‑free, child takes control at 18. Best for long‑term saving.
- Bare trust – similar tax treatment, slightly more control. Complex.
- Save in your own ISA – full control, no effect on student finance (except via parental income). Simple.
- Premium Bonds – tax‑free prizes, but no guaranteed return. Suitable for smaller amounts.
- Do not use a pension – money is locked until the child is 57.
- Consider student finance rules – tuition fee loans are often not worth repaying early; focus on living cost savings.
- Start early – compounding works wonders. Even £50 per month from birth becomes over £10,000 by age 18 (assuming growth).
This article is for general information and educational purposes only. It does not constitute financial advice. Tax rules, allowances, and product terms may change. Always check with HMRC or an FCA-authorised adviser for your personal circumstance