blog details

09 August

How To Build A College Fund

How to build a college fund that grows over time: Innovative saving strategies every parent should know.”

College is one of the most significant investments a family or student can make. The cost of college or university may seem like a distant concern, but with both the cost of living and the price of post-secondary education on the rise, saving money now can be a significant help when the time comes.

Whether you’re a parent planning for your child or a student planning for yourself, starting a college fund early can make a huge difference.

In this guide, I’ll break down the process step by step, so anyone can follow along and build a college fund, even if you’re starting from scratch.

Why Start a College Fund Early?

Money grows over time: Thanks to compound interest, even small contributions can grow into significant savings.
Avoid student debt: The average student loan debt is over $28,000. A college fund helps reduce or eliminate the need for loans.
Teaches financial discipline: Saving for a long-term goal builds great money habits for both parents and students.

How to Build a College Fund

Step 1: Set a Clear Saving Goal

Before you start saving, ask:

What type of college do you (or your child) want to attend, public, private, or community?
How many years of college will be needed?
Will scholarships or grants help cover some costs?

Step 2: Choose the Right Savings Account (Besides RESP)

TFSA (Tax-Free Savings Account): For older teens (18+), a TFSA can be used to save tax-free for education or other goals.
High-interest savings accounts are ideal for short-term goals, as they allow you to access your funds easily.

Step 3: Automate Your Savings

Set up automatic monthly transfers from your checking account to your college savings plan.

Start small, even $25/month.
Increase contributions as your income grows.

Step 4: Assessing Your Situation

Ask yourself:

How much can I realistically save each month?
Do I want complete control of funds until my child starts college?
Review your fund regularly to ensure any necessary adjustments are made.

Tips For Students Starting Their Own Fund

Open a savings account and label it “College Fund”.
Use part of your summer or part-time job income for savings.
Apply for scholarships early and often.
Open a TFSA when you turn 18.

How To Start Saving

There are numerous savings and investment accounts, as well as government grants and benefits, that can help you start saving for school. Consider the following:

If college is just a few years away, a high-interest savings account is great for short-term safety and access. However, if you’re planning for 5 to 10 years, combining it with a registered education savings plan or investment strategy could yield a better outcome.

Better Alternatives for Long-term College Savings

If you’re saving for a child or planning:

Registered Education Savings Plan (RESP) or 529 Plan in the U.S.

A RESP is a tax-advantaged savings account to help you save for your child’s post-secondary education. The money in a RESP is invested tax-free to help maximize the amount available when your child is ready for higher education.

Key Benefits:

The government matches 20% of your contribution, up to $500 per year, through the Canada Education Savings Grant (CESG).
Largest lifetime grant: $7,200 per child.
Funds grow tax-free until withdrawal.

You contribute $2,500/year, and the government adds $500, bringing the total to $3,000/year for school.

How To Start a RESP

Get a Social Insurance number (SIN) for the student
Choose a Bank, credit union, or online platform.
Open the account and set up automatic contributions.
Apply for the CESG.
Track your savings every year.

Tip: If your family income is low, you might qualify for the Canada Learning Bond, which is free money added to the RESP, even if you don’t contribute.

What is a 529 Plan?

A 529 plan is a tax-advantaged savings account designed to help pay for education costs. There are two types:

College Savings Plans, which invest in mutual funds or ETFs, grow tax-deferred and can be withdrawn tax-free for education expenses.

Prepaid tuition Plans: Allow you to lock in current tuition rates at participating colleges and universities.

Canada Education Savings Grant (CESG)

The CESG is a grant paid directly from the Federal Government into an RESP. Everyone with a RESP is eligible to receive it, regardless of their household income. The CESG pays 20% of the annual contributions you make to all eligible RESPs.

Canada Learning Bond (CLB)

Low-income families may also qualify for the CLB. If you’re eligible, the Government of Canada will contribute up to $2,000 to an RESP.

In addition to savings accounts that are specifically designed for education, you can also use regular tax-free savings accounts to help pay for college or university.

How much should you be saving?

It’s important to remember that the price of tuition may be substantially more than the current average when it’s time for your child to start college or university, and that you may need to cover more than just tuition.

You may also want to ensure that you’ve covered any additional costs, such as on-campus living, commuting, and books, supplies, and food.

The amount you choose to save will depend on factors such as your household income, daily expenses, and any existing savings and investments. Maximizing the annual limits for savings vehicles like RESPs or TFSAs can help grow your money, and even small contributions now can add up over time.

A note for parents: Let’s say your child is 3 years old. If you contribute $2,500 a year into a RESP and earn a 5% annual return, by age 18, your child could have around $56,000 for college or university, without loans.

Here are some great tips to help you start saving for your child’s education:

Start Early. The earlier you start saving, even a small amount saved regularly can grow large over time.
Open an Education Savings Account. Tax-advantaged savings plans are designed for education savings, offering tax-free growth if the funds are used for educational expenses.
Set a Savings Goal. Use college cost calculators to estimate future education costs, taking into account inflation, to set your educational goals. Adjust your savings goal as needed.
Create a Monthly Budget for Savings. Automate transfers to your education savings account to ensure consistent savings.
Invest Wisely. Consider a diversified investment strategy for your savings to improve growth potential.
Look for Ways to Increase Income. Consider taking on extra work, starting a side hustle, or investing in income-generating assets to boost your savings.
Stay Informed About Scholarships and Grants. Regularly search for scholarships and grants for which your child may qualify.
Educate your Child About Finances. Teach your child about saving and budgeting. Encouraging them to contribute to their education fund from part-time jobs can also instill a sense of responsibility.
Reassess and Adjust Regularly. Regularly reassess your saving strategy, investment performance, and educational costs to ensure you’re on track to meet your goals.
Avoid High-Risk Investments. As the time to use the education fund approaches, consider shifting towards safer investments to minimize the risk of losses.