Options: How to fund college education

My 14-year-old son may go into higher education at the age of 18. I expect to have to find at least pounds 12,000 for him during the three years of college. I have pounds 150 to save each month. What do I do?

The simplest way to generate pounds 12,000 with pounds 150 per month is by putting money into a building society account. Eighty months of savings at pounds 150 per month tot up to the required capital, allowing the student money up to the beginning of the final term, and the final four months to be contribution-free. Interest is not included, so contributions could be a little less. Anthony Hastings, director of School Fees Insurance Agency, said: 'This is a particularly attractive option if a nil-rate taxpayer holds the account.' For a better rate of return, and the possibility of paying less or recouping more, the first pounds 1,000 you save should be used in National Savings Children's Bonus Bonds. These are tax-free, and can be bought for anyone under 16, up to a maximum of pounds 1,000. Issue F pays 7.35 per cent per annum compound guaranteed interest, for five years.

More risky, but with greater potential, are personal equity plans. Generally more worthwhile for five years' investment or over, PEPs present a flexible approach to equity investments. PEPs are tax-free, and there is a limit of pounds 6,000 per annum, per person. Putting money monthly into PEPs acts as a hedge against the short-term ups and downs of the market.

Aidan Vaughan, Senior Consultant at Moores Marr Bradley, recommends an income fund PEP, such as Fidelity High Income, which has a competitive charging structure.

Another possibility for the first years of saving is a Tessa, for tax-free savings over five years. Tessas are available at high street banks and building societies. Alternatively the 7th Indexed National Savings Scheme provides protection against inflation, with 3 per cent compound interest above the retail price index, tax-free, for five years.

If tying up money in five- year investments, you should start putting monthly contributions into a building society account two years before your child goes to college, to make sure there is cash available to cover the initial period at college, before the rest of your investments mature. If the building society interest is in the name of a child under 18, the interest is tax-free up to pounds 100 per annum.