My daughter was born last May 2025. Sometime in July 2025 I went to the bank for a transaction and they sold an Education Endowment Plan to me for my daughter. This plan means I will be making a monthly contribution of 20,000 for the next 10 years at an interest rate of 15% p.a.
At the moment I didn’t think about it very much, given I was excited at the idea of just saving up something for my daughter.
But now, following your financial literacy posts on Facebook about MMF and the power of compound interest. I am now having a second thought if I actually made the right financial decision of undertaking that plan as against investing it in MMF that would compound.
My understanding of the Education Endowment Plan is 20,000 monthly for 10 years at 15% p.a. which will come to 2,760,000 after 10 years.
However, I used the compounding calculator on Fokona with the following criteria:
Initial investment: 20,000
Monthly contribution: 20,000
Compound frequency: Monthly
Interest rate: 17%
Investment period: 10 years
I arrived at the future value of 6,332,701 broken down as follows:
Total contribution: 2,420,000
Interest earned: 3,912,701
Please kindly advise if I had made a financial mistake on the above analogy and how I can remedy that.
Thank you.
Your concern is valid. Many parents buy education endowment plans without comparing them to other investment options. However, before concluding that you made a mistake, there is an important issue with your calculation: 1. The endowment plan may not be a pure savings product Most education endowmenRead more
Your concern is valid. Many parents buy education endowment plans without comparing them to other investment options.
See lessHowever, before concluding that you made a mistake, there is an important issue with your calculation:
1. The endowment plan may not be a pure savings product
Most education endowment plans in Nigeria are offered by insurance companies. Your ₦20,000 monthly contribution is usually split into:
Savings/investment component
Life insurance cover
Administrative charges
Agent commissions and expenses
So the “15% p.a.” quoted may not apply to the entire ₦20,000 contribution the same way an MMF return applies to invested funds.
You should request the policy illustration and ask:
Total amount payable after 10 years
Guaranteed amount versus projected amount
Surrender value if you stop early
Insurance benefits included
Without those details, it is difficult to make an exact comparison.
2. Your MMF calculation is not directly comparable
You entered:
Initial investment: ₦20,000
Monthly contribution: ₦20,000
17% annual return
Monthly compounding
10 years
That produces a much higher figure because:
Returns are compounded.
The assumed 17% return is maintained for the entire 10 years.
Every naira remains invested and earning.
But MMF returns are not guaranteed. Today’s yields may be 17%, but over a 10-year period they could be:
10% in some years
15% in some years
20% in some years
The actual average return matters.
3. A rough comparison
If you invest ₦20,000 monthly for 10 years:
Return
Approximate Value After 10 Years
10%
~₦4.1 million
15%
~₦5.5 million
17%
~₦6.3 million
20%
~₦7.7 million
So mathematically, a compounding investment such as an MMF will generally outperform a traditional endowment plan if the returns are similar and the fees are lower.
4. Did you make a mistake?
Not necessarily.
The endowment plan provides something MMFs do not:
Forced discipline
Life insurance protection
Education-targeted savings
Protection if the parent dies or becomes disabled (depending on policy terms)
The question is whether those benefits justify the lower expected return.
5. What I would do now
Since your daughter is only about 1 year old, I would:
Step 1: Obtain the full policy schedule and benefits illustration.
Step 2: Check:
Surrender charges
Current cash value
Penalties for cancellation
Step 3: Compare the projected maturity value with alternative investments such as:
Money Market Funds
Treasury Bill Funds
Balanced Funds
If the cancellation penalty is small because the policy is still relatively new, it may be worth considering redirecting future contributions into higher-growth investments.
6. For a child with a 10–15 year horizon
If this were my decision, I would generally prefer a combination such as:
30–40% in a Money Market Fund for stability.
60–70% in an Equity Fund or diversified stock investment for long-term growth.
A child born in 2025 has roughly 16–18 years before university. That is a long enough period to benefit from compounding and stock market growth.
For example, Nigerian equity funds have historically delivered much higher long-term returns than MMFs, although with greater volatility.