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The Government will pay £250 into a CTF for every baby born after September 1, 2002 and a further £250 on their seventh birthday.Strictly speaking, these are not suitable for school fees as the money must stay invested until the child is 18, but they could be a useful part of university planning. The current issue offers interest (including bonus) of 4.45 per cent.Finally, it is worth remembering the Child Trust Fund, an initiative set up by the Government to take effect from April 2005. The Baby Bond is written in the child’s name and belongs to child, usually maturing at the age of 18 or 21.Children’s Bonus Bonds from National Savings & Investments can also play a part in school and university fee planning. It is possible to invest tax-free on behalf of a child in their own name. All returns on Children’s Bonus Bonds are completely tax-free for both child and parent.

Each Bond earns a fixed rate of interest for five years, and on the fifth anniversary a bonus is added. Though it is possible to invest as little as £10 per month for your child, the maximum monthly investment is just £25 per month and annual contributions must not exceed £270.The Children’s Mutual is one such Friendly Society that offers a Baby Bond. Target funds can be used as a one-stop solution in which parents choose a target date, for example 2010, 2015 or 2020, to coincide with when they are likely to need the money. The funds hold a variety of underlying assets, mixing, for example, bonds and equities.David Cowdell, a director at Fidelity, says: “The asset allocation of the Target funds is constantly monitored, with money shifted into less risky investments such as bonds and cash as the target date looms. “As the portfolio builds, I would add such funds as Artemis European Growth, Gartmore Govett US Opportunities and even Legg Mason Japan Equity for long-term growth,” he says.Ms Bowes says a popular choice for parents saving for their children is the Fidelity Wealthbuilder fund, which holds a portfolio of Fidelity funds.Fidelity recently added a new dimension to this fund through its “target” range. However, there are no guarantees that this will be the case and the value of equities can rise as well as fall.Anna Bowes, an independent financial adviser at Chase de Vere, based in Bath, says: “If you start your savings programme early on in the child’s life then it makes sense to opt for equity-based investments. However, if there are five or less years to go, this is far too much of a high risk strategy, and safer cash-based investments or possibly bonds are likely to be the most suitable route.”If you do opt for the collective investment route, there is a smorgasbord of about 1,600 unit trusts and Oeics and around 400 investment trusts to choose from.

These range from those that invest in high risk Japanese or technology equities, to safer funds which hold corporate bonds. Because of the big variation, it is worth thorough research or consulting an IFA on the best options available to you. In most cases you can hold these within an Isa and receive the associated tax advantages.Many fund providers tailor portfolios to suit the very purpose of saving for a child’s education. Foreign & Colonial, Baillie Gifford, Scottish Investment Trust, Edinburgh Fund Managers and Witan are among investment trusts that offer savings plans specifically for children. Invesco offers its Rupert Children’s savings fund, an open-ended fund.Ms Bowes says parents can look further afield than these funds that are targeted specifically at children and should not be swayed by marketing alone.Darius McDermott, managing director at Chelsea Financial Services, says his core recommendation for parents looking to establish an equity portfolio for longer-term savings include Invesco Perpetual High Income and Rathbone Income. These invest in assets such as equities, which over longer term periods tend to deliver better returns than cash-based investments. The main vehicles are collective investment vehicles such as Isas, Oeics (open-ended investment companies), unit trusts and investment trusts.

Other options are investment bonds, National Savings and high interest deposit accounts, or a balanced mix of these.If you start saving early in your child’s life and can stomach some risk, then collective investments or managed funds can offer a suitable route. Add an extra £3,000 per year in top-up fees and the total cost could rise to £33,000.It is not just university fees that are likely to put a strain on finances. School fees are also expensive and private education is being chosen by an increasing number of parents.Currently, 7.1 per cent of parents choose private school fees for about 500,000 children. These fees range from £7,000 per year for day pupils to almost £18,000 for boarders, according to the Independent Schools Council.