Financial investment for children: 5 ways to save, mountain prince

Financial investment for children: 5 ways to save, mountain prince

Investing for children: Five ways for children to save

Lana Iliev, 04.09.2019

Children are expensive: According to the Federal Statistical Office, a child up to the age of 18 costs an average of € 130,000. This is followed by studies or training and requires financial support until the youngsters stand on their own two feet. All the better when parents, grandparents or godparents have saved something that can be used to achieve the children’s goals.

But finding a sensible investment for children in times of low interest rates is more difficult than ever. The classic savings book just doesn’t make any sense at the moment. Read here which alternatives are available and which investments are worthwhile for children.

  • Saving for children: important criteria
  • 5 ways of investing for children
  • Which investments for children should be avoided
  • 5 final tips for investing in children

Saving for children: important criteria

Before you get started and start saving for young people, there are three basic questions to be answered:

Why do you want to invest money??

Save for children

Provide for old age

No specific goal

1 | How high can the risk be??

Of course, an investment for children should be as safe as possible. But in times of low interest rates, savings accounts that fall under the statutory deposit guarantee cannot actually achieve returns that offset inflation. Therefore, the money saved loses real value.

Therefore, consider a little risk, but protect the investment with sufficient risk diversification. The best way is a well thought-out combination of high-return and low-risk investments.

Open credit

First, pay off outstanding loans before you start investing in children. The interest you receive on the investment will hardly compensate for the high loan interest. You also don’t want to leave your kids in debt.

2 | Is it a one-time deposit or regular installments??

If you want to set aside an already existing, larger amount for the child, keep smaller monetary gifts that accrue over time, or start saving?

For the latter, you should consider savings plans. You regularly pay an amount of your own choosing into a savings plan and can thus save a considerable amount over the years.

On the other hand, if the sums are already there, a fixed investment is worthwhile. So you tie up the money over a longer period of time, but also achieve a better return. However, you should never invest all of your money in a single investment product.

3 | Save in the child’s name or in your own name?

Some investments, such as savings accounts, offer the option of being officially attributed to the child. This has advantages and disadvantages:

passbook call money fixed deposit ETF
real estate-


Crowd Investing

Yield * low low low medium to high medium to high
risk profile Risk-averse Risk-averse Risk-averse Income-oriented Income-oriented
investment horizon short term short term medium to long term medium to long term medium term
one-time payment
savings plan

Investment in


Child’s name


Investment in


own name
**

Five ways of investing in children

1 | The classic: the savings book

Generally, savings books are not a good idea at the moment. Interest rates are so low that they are below the inflation rate. So the real value of the money disappears and in the end there is less of the amount saved than was paid in. However, there are individual savings book and savings account offers especially for children who lure with interest surcharges or bonus payments.

The interest on such offers is often capped. For example, you will receive 3% interest on the first € 500, while everything above this amount will earn interest underground. In certain cases, however, such a savings book can still make sense, for example to keep smaller monetary gifts safe.

Attention: Banks can change the interest rate on the savings book. Should the interest rate be lowered, you will quickly find an alternative so that you do not have even worse interest on your savings.

2 | Daily allowance for children

Call money accounts offer a very high degree of flexibility. There should be money here that is needed promptly. If the child’s 18th birthday is approaching, you should switch the capital from long-term investments to a call money account so that it is soon available.

Smaller monetary gifts can also be parked on a call deposit account. As soon as a larger sum of money has accumulated, it should definitely be invested elsewhere.

3 | Fixed-term deposits for children

On the other hand, a larger amount can also be deposited in a time deposit account. The interest here is higher than for overnight money. Fixed-term deposits (as the name suggests) are also less flexible.

However, fixed interest rates are currently also affected by the generally low interest rate level. Fixed-term deposits with a term of more than five years are currently not recommended because you would not benefit from an interest rate hike.

4 | ETF savings plan for children in the junior depot

Shares are an investment option for children, even though many people don’t dare to go public due to the volatility of securities. But especially with a long-term investment horizon, fluctuations in value can be compensated for and ultimately a higher return can be generated than with low-risk investments.

Junior depots

A junior custody account is a bank account that contains securities such as shares or fund units. Since it is specifically for children and is run in their name, high-risk, speculative securities may not be included.

The least risky way to invest in stocks was in the past via ETF (Exchange Traded Funds). This means passively managed funds that track an index such as the DAX (German share index). Invest in an ETF, automatically invest in multiple stocks, increasing risk diversification. In addition, the fees for ETFs are significantly lower than for classic equity funds.

By using a savings plan, fluctuations in the stock market can also be compensated for, because this is where the so-called average cost effect comes into play. With the regular savings plan deposits, more shares are automatically bought in times of a stock market low because they are cheaper. On the other hand, during a stock market high it is automatically less because the individual shares are more expensive. Therefore, over time, you buy at the average price.

However, an ETF investment only pays off with a long-term investment horizon. Because the shares may under no circumstances be sold in times of bad stock market prices. So if you save for your child at short notice, ETFs are not a good option. There is also the risk that your child will reach the age of majority during a stock market crash and sell or sell the ETF shares at a loss.

5 | Real estate crowdinvesting with BERGFÜRST

Real estate crowdinvesting at BERGFÜRST offers a medium-term, yet profitable alternative. With fixed terms of one to five years, investors receive 5.0% to 7.5% interest per year. Crowdinvesting holdings and ETF shares are not subject to statutory deposit protection.

In real estate crowdinvesting, a large group of private investors jointly invest in real estate projects via an internet platform, thereby making mezzanine capital available. This means that private investors can now invest in an asset class that was only accessible to large investors for a long time.

Crowdfunding and crowdinvesting should not be confused. While the former collects donations via online platforms, the latter is an opportunity to invest with a prospect of return.

BERGFÜRST is also a good addition to an investment in ETF. Because of the low minimum investment volume of just € 10, the portfolio can easily be expanded to include the real estate asset class. Alternatively, the Relax savings plan can be used to save monthly for the future of the child.

It is not possible to open a BERGFÜRST depot on your child’s behalf. However, you can keep an account that will be transferred to your child at the age of 18.

Overview of investments for children:

passbook call money fixed deposit ETF
real estate-


Crowd Investing

Yield * low low low medium to high medium to high
risk profile Risk-averse Risk-averse Risk-averse Income-oriented Income-oriented
investment horizon short term short term medium to long term medium to long term medium term
one-time payment
savings plan

Investment in


Child’s name


Investment in


own name
**

* The return is based on past developments and may be different in the future

** Only pays off if special children’s offers are used at special rates

Which investments you should avoid for children

The Stiftung Warentest advises against training insurance as an investment for children. These are insurance policies with high costs and little flexibility. The same applies to letters of protection. In general, consumer advocates advise saving and insuring to separate, since combination products usually have worse conditions.

A home savings contract is also poorly suited as an investment for children. A home savings contract usually only pays off if you really want to build your own home in the future and who can know whether a child would like it at some point? In addition, interest rates are currently also low here.

Even with classic bank savings plans, only a very low interest rate can be earned due to the low interest rate phase.

Five final tips for investing in children

1 | Pay attention to security and real interest rates

The security of the investment for the child is of the utmost importance, but also check whether the investment will still generate profit if you pull inflation out.

2 | Start early

The earlier you start, the more you benefit from the compound interest effect. In addition, a long period of time enables you to invest on the stock exchange and to balance fluctuations in value.

3 | It really makes sense to invest in the child’s name?

You save taxes, but think carefully about what disadvantages the child could face in terms of health insurance and BAföG. The amount of the deposits and the investment period are decisive here.

4 | Consistently save

Build up the savings for the child constantly and save regularly by using savings plans or setting up a standing order.

5 | Shift the investment as the child grows older

As the child’s 18th birthday approaches, start investing in safe savings accounts early so that the money is available.

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