Tweak Your Biz » Finance » Education Fees and Investment Policies. Banks? No Thanks!

Education Fees and Investment Policies. Banks? No Thanks!

Just when you thought your bank couldn’t make you feel any worse via increases in mortgage rates, account charges, and the stifling of credit; they have the gall to start delivering sermons on the need to start saving for your children’s education with one of their investment policies.

It’s all designed to scare the bejaysus out of you: motivation to save through fear. They give the impression that they are doing you a favour by highlighting the issue of education costs and prompt you to start saving as soon as possible.

There’s nothing wrong with saving for education via an investment policy, but it only makes sense to do so if you are not going to get screwed on charges. Do you want to save for your own child’s education or for the education of the child of the person that’s selling the product? If you are going to start saving for education fees you have to get the product right from the outset, otherwise you will end up with something that is not fit for purpose.

It would not be unusual for a bank to charge you 5% of every payment you make to an investment plan, plus an annual management charge of 1.5% pa of the value of your fund. Or, to put it another way; if your fund had a growth rate of 6% pa over the term of the policy the charges would reduce the growth to about 4% pa. This ‘beast’ of a product is woefully bad value for money.

In addition, your ‘make-it-up-as-we-go-along’ Government have increased the tax on growth of these investment policies to 28% AND introduced an idiotic 1% Tax on all contributions that you make to the plan.

Seriously folks, you have got to put the time into researching what is on offer in this market. You can’t really do anything about the Government Tax, except giving  your local TD a piece of your mind. What you can do is focus on the product charges. It is possible to save/invest in these products without the 5% charge on each payment and reduce the annual management charge to about 1% pa. Your bank will not be able to provide you with a competitive product.

Example: If you saved €150pm for 18 years in what the bank are offering you would end up with a fund of €43,088. This would be increased to €45,867 if there was a single charge of 1% pa on the value of the fund. A potential €2,779 more in your pocket, as opposed to the banks. Both funds assume a growth rate of 6%.

The Author:

I am a Financial Advisor who is authorised to provide broad based financial advice in relation to PRSA's, Pensions, Life Insurance and other Insured Investment Products in Ireland. Special Focus: Low-Cost 'Execution Only' Financial Products

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  • Thanks for sharing Derbhile. Good help to those that are not marketing oriented. The process sounds simpler 🙂

  • Hi Derbhile, I think we are often guilty of forgetting how a good/interesting/against the odds story can communicate deeply with people. Very often, when we talk about business stories, we tend to focus too much on the successes, while attempting to ignore the failures. It worth remembering that every business highlights success, often attempting to create an impression that they never had a rocky moment. As we know, this is rarely the case so perhaps a more honest approach may in fact end up actually been the more effective. I’d love to know your thoughts?

  • Short, sharp and very much to the point. Great post, Derbhile; would love to see more web editors in particular following your recommendations.

  • Hi Una, excellent article on a very important subject.
    This is an area we come across very often in the translation services business. As we deal with clients all over the world you need to be aware of the cultural differences. How you ask for something here in Ireland is not the same way you might ask in Italy. Each culture has its own nuances.

    I remember being trained in Japanese culture for Business Cards. We tend to treat cards lightly – we take the card and put it in our pocket or folder to read later on. However this is a big no-no in Japan.

    Firstly the person has earned their title and position – so giving you their card is giving you a piece of themselves. I would always accept a card with both hand and carefully read the persons name and title – to show respect for the information they have given me.

    Secondly always keep the card in your hand or visible. One of the classic mistakes is putting a business card in your back pocket. You will then sit on the card – and that persons reputation – which is seen as an insult.

    A little trick we used was when we had a number of people in the room we would accept their cards and when I sat down would place the cards in front of me in a position opposite where that person sat. So I had a mini map of who was who. This way to ensure I had a person name right just before I addressed them I would look down to my notebook and read the card in front of that person. I could check their name and as I raised my head I would be immediately facing them and would know their name. Its very simple but shows courtesy and professionalism. You also get everyones name right.

    Damian Scattergood
    STAR Translation Services:
    Confidence in a Translated World.

  • This Mashable post may be of interest to readers here:

    8 Social Media Strategies to Engage Multicultural Consumers

  • Good post Gerard.
    I’m not familiar with this products but surprised me the bank charge of 5%, is that monthly?
    The other issue is when these institutions assume the “growth rate” of, in this case, 6%. How certain than can be? How dangerous is if there’s no growth at all? Does your money literally make no leverage?

  • Gerardsheehy

    Hi Fred,

    It depends on the frequency of payment but yes, the 5% is of every contribution that you make for the term of the plan. Some companies will offer a lower charge if the contribution is substantial – maybe €1,000 a month, but it can be avoided completely if you do enough research. Incidentally, this 5% would be typically on some pension products also.

    The ‘Growth Rate’ is an assumption so there is no guarantee with it. The ‘growth’ on the value of the policy depends on how the funds that you invest in perform. It’s possible that there could be no growth or even negative growth but, personally, I would rather risk that not happening as opposed to leaving money in a deposit account where inflation may erode the value of your money.

    That is why it is important to find a product with a low-cost charging structure so that the charges do not inhibit any potential growth too much.

  • “Do you want to save for your own child’s education or for the education of the child of the person that’s selling the product?” What a line, fantastic! The key as you say Gerard is to know what exactly it is that you are been charged. Thanks, Niall

  • I love that phrase: “Do you want to save for your own child’s education or for the education of the child of the person that’s selling the product?” My Dad sold pensions and investments for years, I have neither as a result of serious questioning on my part and firm belief that the only one’s making any money from them were the sellers. I do realise that there are some that are good, however I think overall until we start teaching this in our schools as part of our education cirriculum and we all get a basic understanding of it we will be royally screwed with mis-information and the fear factor.

  • Gerardsheehy

    There’s some excellent information on the NCA and AskAboutMoney websites. Waiting for the Government to do someting about it through schools is folly.

    And, you’re right – there are competitive products out there but you have to roll up your own sleeves and do the research as no one is going to roll them up for you unless you pay them to do so. IMHO, deferring long-term financial planning for the reason you state is not a good idea.

  • We will have to agree to disagree on it Gerard – I don’t agree with all the scare tactics used to get people to invest in pensions and savings plans. Nor am I waiting for it to get into schools. I am a firm believer that we are ultimately responsible for our own situations in life and it is each individual’s repsonsibiltiy to educate themselves to the pros and cons of it – which I do.

  • Thanks Gerard

  • Anonymous

    Personally speaking I don’t get this concept of “saving for your child’s education”. My parents couldn’t afford to pay to put me through 3rd level education, and I had to take loans out to make it happen. Even though I’m only just finished paying them off, it was easily the best financial decision I ever made.

    Yes it will be nice to give our children a leg up, but they must be able to take some responsibility too, and stand on their own feet.

  • Completely agree with you on that Frank. Too many parents feel the pressure to “cushion” their children from the realities of the world, which in the end does them no favours.

  • How very true Tori. It amazed me when I was an Ann Summers Manager the amount of party organisers that didn’t target male customers. When I first started I didn’t drive and I’d always leave a brochure with every taxi driver I hired and developed many loyal customers in them. Everyone is a potential customer for most products and yes, developing that all important relationship is the first step, knowing your product definitely comes second, sales technique comes third, in my opinion. Great post.

  • ToriHawthorne

    Thanks for your comments guys…nWhen concentration is put on sales technique I feel it creates a more pushy sales-person. All that will do is turn customers away.nAnd my male sales agents are doing well ;-)nnThanks to ye all for taking time to comment.

  • Hi TorinnCustomer before product everytime (provided that the product delivers of course!). nnOften the argument is made that you cannot create a great product without the sales first to pay for development (especially in the services business). But I have seen when product or service development has not happened properly before it was sold to an unsuspecting public. nnThis is a disaster, hence the comment above that the product needs to do what it says when purchased!nnRegardsnBarney

  • If I was selling cosmetics, why would I not consider men? There is a market for every product and service out there, otherwise it would not be thought of :)nnIn the same light, there is product for every person, and a person for every product. But only the person can dictate the product they prefer (aside from obvious advertising cajoling).nnIt is possible to sell to people who never considered a product, create a market that was not previously there. it’s the thought process and techniques used then, that will dictate success, I feel.nnGreat post Tori, thanks for highlighting the importance of the WIIFT, when attempting to sell 🙂