Investing & saving for children 2022: the best alternatives

When children grow up, they need quite a lot of money quite quickly. Parents are therefore acting with foresight if they begin as early as possible to set aside some capital for their offspring for the start of their own lives. The following article provides information on recommended investment strategies. We give tips and present the best alternatives to investing and saving for children.

  • All legal representatives of the child must give their consent
  • A copy of the child's birth certificate is required for the opening application
  • ETF savings plans with a long term are particularly suitable as an investment for children
  • The basic fees for the junior securities account should not exceed ten euros
  • The earlier you start saving, the better it is for your child
  • Only index-based equity funds are recommended without restriction
  • If you are going to trade in securities, then don't just back one horse but spread the risk

Our recommendation in the area of share depot for children can be found here: junior depot comparison

Investing money for children: 5 alternatives

It used to be that investing for kids was delightfully simple. One simply opened a savings account in the child's name. Friends and relatives could deposit money there at any time, which automatically increased thanks to lush guaranteed interest rates. This has long since come to an end, as since 2008 the ECB's key interest rate has fallen from over four percent to almost zero percent in the meantime. Alternatives to the savings account for children are therefore in demand.

  1. Investment in etfs and funds: fund savings is a good investment option and the earlier it is started, the better. Etfs with the longest possible maturity of ten years or more are particularly recommended.
  2. Savings account / passbook: this form of investment is currently not recommended, because investors lose money with it. Interest rates there have been below 0.1 percent for years, well below the rate of inflation.
  3. Investment in individual shares: shares entail considerable risks, especially as investment objects, because the price development of a share is simply unpredictable. If stocks as a savings vehicle, it's best to go for stock-solid companies, such as those in the S&P500.
  4. Building savings contracts: A building savings contract yields practically no interest, but in return you get a very low-interest loan after the savings phase. Therefore it is worthwhile only if one intends to finance a real estate later with the help of the building society credit.
  5. Piggy bank: inflation is currently over seven percent (as of may 2022). Accordingly, the purchasing power of the money also decreases. If you just put your money into a piggy bank, you will automatically become a little bit poorer every day.
  6. Time deposit: for security-conscious investors, time deposits can still be an alternative. Interest rates are higher than savings accounts, depending on your investment horizon. More information here: fixed deposits for children

ETF investment for children: how index funds work

ETF (exchange traded funds) are inexpensive and cause almost no administrative expenses. In addition, they spread the risk, are therefore considered low-risk and are highly valued as a solid form of investment by financial experts.

Etfs are exchange-traded index funds, d.H. Each ETF contains securities of several companies with a composition that corresponds to the respective ETF index.

There are passive and active ETF. Passives follow their index closely, active are managed. Both types of ETF are traded almost exclusively on XETRA, a trading platform of deutsche borse AG.

Saving for kids

Open a securities account for children: recommended providers

A recommendable depot raises hardly and ideally no basic fees, excludes risky plant forms from the traden and does not require more than ten euro for the mechanism of a savings plan.

The more ETF and stock and fund savings plans the child depot offers, the better. Interest savings offers, on the other hand, belong more in the "nice to have" category due to the underground interest rates. In the following, we present recommended options for investing and saving money for children.

Consorsbank children's securities account

Parents can choose between funds, etfs and shares for their children's custody accounts. Both one-time and regular savings deposits are possible – the latter starting at ten euros per month. Savings rates can be adjusted and also interrupted at any time. Custody account management, 370 ETF savings plans and 130 fund savings plans are free of charge. All other etfs and the 580 share savings plans cost 1.5% in fees.

Comdirect share deposit for children

For the first six months, comdirect does not charge any fees for securities account management. After that, however, it remains free of charge only if an active savings plan is concluded (which is possible from 25 euros per month) or if at least two trades are carried out per quarter. If neither is the case, the deposit costs 1.95 euros per month.

ING junior deposit

ING advertises its junior depot with free custody account management, fee-free ETF savings plans, and savings plans starting at one euro savings rate. High-risk asset classes such as leveraged products or certificates are completely excluded from trading. Deposit management at ING-direktbank is convenient via the web or app.

  1. Both parents agree with the opening
  2. The online application is filled out
  3. The contract documents arrive in the mail and are signed and returned
  4. You receive the access data and can immediately buy etfs and shares for your child

Investment and saving on name of the child or on own name?

If funds are saved for the children, then this should also be done in their registered name. On the one hand, this prevents premature withdrawal and misappropriation, since the legal guardians cannot access this money.

In addition, it can be advantageous from a tax point of view: if the guardians save in their own name, they will also have to pay taxes on any capital gains that arise. On the other hand, all such income from a child's account belongs solely to the child and is thus protected up to the amount of 10.581 euros (as of 2021) exempt from tax.

Compound interest: the eighth wonder of the world

When interest income is reinvested and this also generates interest, this is called compound interest. The financial world also calls this form of revenue generation self-financing or (profit) retention.

If, for example, you decide to reinvest in an ETF, the ETF operator buys all the distributed income immediately. D.H. Without further consultation with the shareholder more ETF shares. The additional income thus generated leads to an accelerated increase in capital without any further action on the part of the investor.

Inflation and loss of value affects even the smallest ones

Due to corona and especially the ukraine war, inflation has skyrocketed in recent months. In april 2022, it was 7.4% in germany, and just above that in the eurozone.

This means that in this country – compared to the same month last year – all products and services have increased in price by this percentage on average. Unfortunately, this mainly affects existentially important daily necessities such as food and energy.

Inflation hits especially hard those who have to turn over every cent twice anyway.

Building society savings contract, education insurance & child protection bond

With regard to the valuation of building savings contracts, nothing fundamental has actually changed since their existence. As before: due to the low interest rates, they are not worth to invest and save money. However, it makes sense to finance a property with the low-interest building society loans then available.

Only in connection with a riester contract, however, payments on building savings contracts can be deducted from tax. Education insurance and child protection bonds are less recommended. Both are too inflexible, their costs are too high and their returns too low.

Sustainable and long-term thinking

Sensible saving for children requires perspective thinking. After all, it can take up to 18 years for the offspring to come of age and thus have access to the money invested in his name. Financial products with a long investment horizon are therefore recommended.

Unlike self-directed securities trading, long-dated index-based funds offer solid returns – and without the need for guardians to intervene or worry. Therefore, investments with a term of at least ten years, such as ETF savings plans in particular, are recommended

What stiftung warentest recommends

Investing and saving for children is worthwhile for many guardians for tax reasons alone, according to stiftung wartentest. Fund savings, with their long terms, broad risk diversification, low fees and low administrative costs, are particularly recommended as a form of investment for children.

This is especially true for ETF savings plans, as the fees and risks here are usually particularly low. Stock funds offer better yield opportunities, but also involve a higher risk and are therefore only recommended to a limited extent.

Influence of savings balances on bafog

Pursuant to §§ 26-30 bafog, trainees and students must first use their own assets to finance their education before they can make a bafog claim. However, there is an allowance. This is for singles without children at 8.200 euro.

It increases by 2 percent for married trainees or trainees in a registered partnership.300 euros. The tax-free amount for each child the trainee has is increased by exactly this amount. (as of 2022) LINK TO OFFICIAL WEBSITE

Frequently asked questions – FAQ

Since the subject area of investment and savings for children is extremely complex, many questions also arise accordingly. The competent tips from stiftung wartentest on investing and saving money, which it has published on its test site under the title "FAQ on saving for children – what parents should know", are particularly recommended.

What is the best way to invest money for my children??

It is recommended to set up a children's deposit or a children's savings account. On it parents, relatives and friends of the family can transfer money at any time once or also by standing order.

All donors can be sure that their money will benefit the child alone, and only when the child has reached the age of majority. The legal guardians manage the account up to this point, but cannot withdraw any money from it.

How much money should you save for a child?

This depends on the financial strength and the future plans. An important factor in investing money for children is when to start saving. The earlier this is done, the less you have to pay in to ultimately reach the desired amount.

If you invest about 25 euros a month in an ETF savings plan, you can expect to earn about 3,500 euros after ten years – according to the calculation of the free ETF savings plan calculator from stiftung warentest. More info here: savings rate for children

Which investment is still worthwhile?

Which investment for children is worthwhile? Time deposits, whether as overnight money or for several years, are currently not worthwhile. However, this could change soon, because interest rates seem to be gradually rising after long drought years.

In one or two years, fixed-term deposits could be an alternative again. Until then, solid, long-term funds are recommended as a safe form of investment, which are ideally index-based to minimize risk.

You can also open a time deposit account for children there.

What form of savings for children?

Responsible parents do not take risks with their children. This principle should also apply when saving for children. Therefore, all risky investments such as, in particular, trading in options and warrants, derivatives, leveraged products and cryptos are taboo. Fixed deposits are safe, but hardly yield any returns.

Solid fund and ETF savings plans with a term of at least ten years promise higher returns.

Savings for children

Advice from debeka, sparkasse, volksbank, HUK, union investiment useful?

All financial service providers mentioned in the title have been active in the market for many years and have earned a good reputation as reputable companies. A consultation with them is therefore basically sensible. Of course, one should take into account that every company wants to sell its products and the advisor may even live off commissions.

In addition, the quality of advice also depends on the expertise of the respective advisor. Therefore, it always makes sense to seek advice from several financial companies before making an investment decision.

Do children have a savings allowance?

Yes, regardless of age, every person in germany generally has a savings allowance. In the course of the introduction of the flat rate withholding tax, this savings allowance was merged with the flat rate for advertising expenses in 2009 and has since been called the savings allowance (§ 20 IX estg). The background to this is that capital gains tax is payable on all investment income, such as interest on savings, dividends or gains from the sale of securities.

However, thanks to the savers' lump sum, a certain amount is tax-free when determining the income from capital assets. Currently, this amount, for which no capital gains tax is payable, is 801 euros per person, i.E. 1602 euros for two parents. (as of 5/2022) all capital gains above this amount are generally and uniformly taxed at 25 percent. In addition, there is the solidarity surcharge of currently 5.5 percent as well as, if applicable, the solidarity surcharge. The church tax. But beware: this only applies to private individuals; for commercially generated capital income, the tax regulations are much more complicated.

In any case, any legal guardian whose capital income exceeds the said 801 euros can use children's accounts to make another part of their capital income tax-free. In addition these capital incomes must be gained only on the child account, already one can use the saver lump sum of the child. But of course the money then also belongs to the child. D.H. The legal guardians may only manage it, but not dispose of it. This money is only released when the child has reached the age of majority. With his 18.The child receives full and sole power of disposal over the child's account, including all funds and securities held there.

Saving for the children despite hartz4, is that possible??

For hartz4 recipients, strict legal limits apply with regard to their assets. The exemption limit is currently 150 euros per year of life, but at least 3.100 euro, this amount is also valid for minors (as of 2022). All assets that exceed the exemption limit will be deducted from hartz 4 benefits.

Hartz 4 recipients who want to invest money for their children should therefore take these exemption limits into account. This means that if the existing parental assets exceed the exemption limit, it would be wise to transfer this partial amount to the children in order to exhaust their exemption amounts in this way. For this it is necessary that one transfers this money demonstrably and explicitly to them. A children's account or children's securities account is best suited for this purpose.

It is not enough to save the money only "for" the children, it must be invested in the name of the child, i.E. It must officially belong to the child. Only then will this money be deducted up to the exemption limit of 3.100 euro will not be deducted from the hartz4 income of the parents. But of course, this money then belongs to the child, which means that the parents are only allowed to manage it, but neither withdraw it nor transfer it to their own account. And the child itself only comes to it when it is of age.

What is the non-assessment certificate??

A non-assessment certificate is a confirmation from the tax office that a natural person (i.E. Not a company) is not assessed for tax purposes. The non-assessment certificate is therefore aimed at people whose expected income is below the basic tax-free amount limit, such as pensioners, students and low-income earners.

With such a certificate, they are not assessed for income tax and therefore do not have to file an income tax return. The non-assessment certificate can easily be obtained from the responsible tax office, it is valid for three years. If the financial circumstances of the holder of such a certificate improve in such a way that he is likely to become liable to income tax, he must inform the tax office, return the certificate and file an income tax return in return. (§ 44a estg)

The non-assessment certificate is also significant for financial investments. It can be used to avoid the investor's bank automatically paying capital gains tax to the tax office on capital gains. If you have such a non-assessment certificate and present it to your bank, you do not have to submit an exemption order there either. Capital investors thus receive their investment income without any tax deduction thanks to this certificate – and this even if the investment income should exceed the lump-sum savings amount. In fact, unlike a normal exemption order, the amount of tax-exempt income under a non-assessment certificate is not subject to any limit at all.

Can parents dispose of children's assets?

No! Parents may only hold a child's assets in trust within the scope of their custody rights. However, they may not spend it under any circumstances, that is, neither for their own purposes, nor for other things such as maintenance or even to finance or increase the standard of living. If the parents violate this, the children can reclaim the money by suing for damages.

Parents also have a duty under their custody laws not only to preserve their children's assets, but even to increase them. Failure to do so is considered a breach of their duty of care for assets. For this reason, the children are also entitled to damages, for example, if the money was used to finance the jointly used apartment.

As the celle higher regional court ruled (az. 21 UF 89/17), this prohibition to spend the child's money applies to the parents even if the minor child should have given his or her express consent to do so – since he or she is not yet legally competent. In the case in question, the parents had used the child's money, with the child's consent, to finance a driver's license.

This was unlawful, the judges ruled, and ordered the parents to reimburse the child for the entire cost of the driver's license, including interest, from their own assets. Only when the child reaches the age of majority may he or she decide what happens to the money invested in his or her name; before that, it is taboo for the child himself or herself and for the parents as well.

The only exception to this legal regulation are earmarked gifts. If, for example, the grandparents give the child money with the condition to make with it the driver's license, the parents may spend the money also for exactly this purpose.