What Is an Education Bond? A Simple Guide to Securing Your Child’s Education
What Is an Education Bond? A Simple Guide to Securing Your Child’s Education

We all want the best education for our kids, but it doesn’t come cheap. If you’re planning to take your child to private school, you can expect to pay between $15,000 and $50,000 per year, and that’s just tuition. There’s also the uniforms, books, activity fees, equipment and other expenses to think about.
To make things more expensive, education costs are going up. Victoria’s high-fee private schools have already hiked their fees after a state payroll tax was introduced, with parents of seniors now having to pay over $40,000 a year. It’s not just Victoria though; private school fees right across Australia are rising faster than inflation, putting parents in a tight spot as the cost of living also goes up.
But what does all this mean for parents? Well, it’s more important than ever to have a conversation as early as possible about the education you want to give your child and start making plans for how you’re going to fund it.
One of the best options is an education bond. It provides an easy, hassle-free and tax-efficient way to save up for your child’s education.
In this guide, we explain everything you need to know about an education bond including its benefits, how it works and how to set one up.
What is an Education Bond?
An education bond is a long-term investment that is set up specifically to fund future education expenses. It’s often a better way to save for school fees and related expenses, compared to putting money in a savings account where it earns minimal interest and doesn’t enjoy any tax advantages.
There are a number of education bond providers in Australia offering different kinds of plans with varying terms and benefits. These providers are under the oversight of the Australian Prudential Regulation Authority (ARPA) and must comply with the Life Insurance Act 1995.
How Does an Education Bond Work?
An education bond is an investment as well as a life insurance policy. As an investment, your contributions are part of a managed pool of funds that are invested to potentially earn returns.
As a life insurance product, you make regular contributions to it and choose a beneficiary. But unlike traditional life insurance, you can access your funds at any time and use them to cover education-related expenses for your child.
If you pass away, the money in an education bond goes directly to the nominated beneficiary, bypassing the estate and probate process.
Setting Up an Educational Bond
The first step of setting up an education bond is to choose an approved provider and complete an application form. We recommend comparing several providers to see how they differ in terms of benefits, requirements, and investment strategies. At Lifestyle Led Wealth, we can help you choose the best provider that best aligns with your financial situation and goals.
You’ll need to specify the beneficiary of the plan or choose multiple beneficiaries if you’re saving for multiple children.
Most providers require a lump sum to kickstart your education bond, followed by monthly payments or occasional lump payments. The minimum amount you can contribute varies among education bond providers. Anyone can contribute to an educational bond, including your employer, relatives, and friends, as long as they are over 16 years of age.
Tip: You can nominate anyone to be a beneficiary, even if they are not your child. This is great if you want to set up an education bond as a gift to your grandchild, niece, nephew or godchild.
Investment Strategies
While you don’t have direct control over how your funds are invested, you can usually choose your preferred investment strategy. You take a more aggressive style if you want potentially higher returns or pick conservative investments if you prefer lower risk.
We recommend discussing your options with us to ensure you choose the best strategy that fits your risk profile.
The 125% Rule
To maintain the tax benefits offered through education bonds, you can only contribute up to 125% of the previous year’s contributions. For example, if your total contributions for 2024 were $10,000, the max allowed contributions for 2025 are $12,500. This lets you increase your contributions as your income rises.
Are Education Bonds Tax-free?
It depends on the timing. During the first 10 years, all earnings on your contributions are taxed at a maximum of 30%. You don’t have to worry about declaring your earnings in your tax returns; the bond provider pays the tax for you.
If you withdraw your funds before 10 years, any earnings are taxed at your marginal rate with a 30% offset to cater for tax already paid. But if you wait until 10 years are over, you can withdraw your money tax-free.
When Can I Access Money In My Education Bond?
Unlike an insurance policy or some long-term investments, most providers let you access your education bond benefits at any time. Just keep in mind that withdrawing money before 10 years means you have to pay tax on your earnings.
Benefits of an Education Bond
Education bonds have several benefits that make them superior compared to other options, such as just having your money in a bank account. The benefits of education bonds include:
- Earnings are taxed at a maximum of 30% and are completely tax-free after 10 years as long as you follow the 125% rule.
- If you access funds before 10 years and use them specifically for educational expenses, your provider can apply to get the 30% tax refunded back to you. This works out to an additional $30 for every $70 withdrawn, giving you more money to fund your child’s education.
- You can earn significant returns on your contributions. In other words, your money doesn’t sit idle; it works for you. And since any earnings are automatically reinvested, your money compounds to create more wealth the longer you leave it.
- An education bond bypasses your estate, will and even creditors, ensuring only your chosen beneficiary benefits from the money even in your absence.
Secure Your Child’s Future With an Education Bond
Whatever stage of education you’re planning for, from primary to university, we can help you set up an education bond that takes the stress of funding your child’s education off your mind.
Reach out to us today at 03 9847 7516 to talk to our financial planner, Justin, about an education funding strategy for your child. Disclaimer: The information contained in this document is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs.