Borrowing lump sum on children's allowance ?

iMax

Hi all,

Quick question. My daughter who is three has approx €8k in a standard AIB bank account, due to us not touching her children's allowance from day one. We have no intention of touching it as we want it to be the start of a college fund for her (or whatever when she gets to that age).

By my reckoning, by just sitting there she will have nearly 40k at age 18, which is nice but not great. However if we switch her to AIB's 7 day notice account she would have about 60k - even better, so we were going to do this, however, now I'm thinking would it be better to borrow say 50k from the bank & invest that now in a long term account with the monthly children's allowance payment paying back the loan & thereby hopefully making about 100k for her by age 18 ? (God knows how much 100k will be actually worth by then!)

Would this be possible or even adviseable ?

kazzer

Do you really think you can make money by:

1. borrowing some
2. putting it in savings to make some measly interest
3. and simultaneously repaying the loan with a higher rate of interest????????

Is that your plan, or have I got it wrong?

iMax

You've got it wrong. The plan is to borrow a lump sum & repay it direct from her children's allowance. Get professional advice to invest the lump sum & hopefully make some decent money...

unclebill98

TBH, its got trouble written all over it.

If you have a lump sum lying around doing nothing then fine. What happens if the investment goes sour, you left paying it off for years to come.

I'd not do such a thing.

Then nothing ventured nothing gained....

The Rooster

If the interest rate on the amount borrowed is 10%, you'll need to make consistently higher returns than that on your invesment for this to pay off. That means a risky investment. That means you could lose part of your capital and end up with less than 40k when the child is 18. There's no way of predicting this. Nothing ventured, nothing gained is right - also nothing ventured - nothing lost. All depends on your risk profile.

I think if you opened a few of the regular saver accounts that have 7%+ interest rate (some have more conditions than others), you'd be doing well. First Active had the best rate and fewest conditions last time I checked. For your existing lump sum there are a number of accounts offering 5%+ rates.

stepbar

Good idea in theory. However, AFAIK children's allowance is 166 p.m and a loan of 50k would cost a lot lot more to service, even if you put it over the max term for a personal loan i.e 7 years. My advice would be to get independent advice. There's value to be had in some shares at the moment e.g if you were to buy some bank shares at the moment the dividend would be around the 7-10% mark. Of course you have to deal with the ups and downs but with the right advice you could have a lot more than 100k after 10 years.

Jet Black

I have a way to quadruple your money by Sunday, Curtain Call in the 3.45 odds are 4-1.
That gives you a return of 200k Guaranteed*!! (*This is not Guaranteed) Sorry wrong thread.

I personally would go with the safer option of AIB.
As stepbar said you would need a return of over 10% a year to be making money. 10% is high and good return but DIRT leaves you with 8%. Min loan rate from a bank is 6.9. So you will get 1.1 per year for risk you take.

Average interest a bank gives 4-5.2%. Shop around before you commit.

You can look at higher risk greater return options(shares, property). But you risk losing your original investment.
Your choice though:-)

stepbar

TBH you couldn't go too far wrong with AIB's Parent Saver plan at the moment -

http://www.aib.ie/servlet/ContentServer?pagename=ROIPersonalPortal/pp_main&c=AIBParent_P&cid=1177399305381&channel=P003

iMax

Thanks for that stepbar. However, would the 7% 7 day notice account not give a better return over time ?

stepbar

Have you a link for that? I can't find it.

iMax

My bad, it's 7day 5%

http://www.aib.ie/servlet/ContentServer?pagename=ROIPersonalPortal/AIBContent_C/pp_service&c=AIBContent_C&cid=1177399655563&channel=P002

sofireland

A lot depends on the age of your child at the moment, if there are 7 - 10 years til college, then regular savings into a managed fund using the lump sum to inject a kick start at the beginning.
Giving the low stock prices presently, long term investment strategy may prove better rewards over that time frame imo