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Investment – save for children 2020: it’s really worth it

financial investment & Saving for children 2020: It’s really worth it

Many parents and grandparents would like to set aside money for their children to save for them. The savings book used to be the first choice. However, interest rates are now so deep in the basement that the savings book is no longer worthwhile and inflation only loses value. However, there are good and low-risk alternatives. In this article you will learn how you can best invest the money for your children in 2020 and what you need to pay attention to.

the essentials in brief

  • Savings books are currently worthwhile & Fixed-term deposits not because the interest level is so low
  • Call money accounts offer little interest, but are safe
  • The most sensible: Fund and ETF savings plans through a custody account
  • Note child allowances: save yourself or on behalf of the child
  • Do not combine savings products with insurance (training insurance, life insurance …)

Table of Contents

What is the right investment for your child?

You can’t answer that at all, because the savings goal is what matters most. Do you want to save money for your child’s driver’s license or study? Are you looking for a sensible way to invest larger grandma and grandpa gifts? Or should the child learn how to use money? For all cases, we have compiled the best options currently available and offer step-by-step instructions so that even beginners know exactly what to do.

1. Pocket money

The pocket money is best on one children account canceled. Some banks can open it from the age of 7, 10 years is a general recommendation. Until then, the money should be better paid out in cash. The advantage of child accounts is that they are kept as pure credit accounts. This means that an overdraft is not possible. In addition, banks are not allowed to charge account management fees. We usually recommend direct banks as they can offer more favorable terms and higher interest rates compared to branch banks due to lean cost structures. However, it is a little different with child accounts. You can get up to 3% interest with a children’s savings account at the Sparkassen, Volks- und Raiffeisenbanken – significantly more than at the direct banks. However, this interest usually applies to the first 500 or 1,000 euros. Such an account is not suitable for larger sums.

2. Small monetary gifts

Small monetary gifts such as 50 euros for a birthday are also available in the first few years of life. It used to be put on a passbook. Nowadays you get on one Savings account however, higher interest rates than on the savings book or current account. In principle, it has replaced the savings book and is just as safe (up to EUR 100,000 thanks to the EU deposit guarantee). In our daily allowance comparison you will find the currently best conditions. Ideal for small sums, there are more sensible ways for larger sums.

3. Bigger cash gifts

Larger monetary gifts (for example, 2,000 euros) should be invested differently so that they do not lose value over time due to inflation. You should be on the lookout for investments in which to invest the money for several years. In the past, fixed deposits would have been recommended. The interest rate on fixed deposits is currently just 1 to 1.5% (as our fixed deposit comparison shows). We therefore recommend you as a lucrative alternative depot to open and in fund to invest.

But it’s best to forget speculation with single stocks, currencies or commodities. Security should be more important than return. Funds are ideally suited for this because they bring significantly less risk than shares due to diversification. A distinction is made between active and passive funds (also ETFs called). In the case of active funds, a fund manager manually selects individual shares and purchases them. You can then invest in his selection. With a passive fund or ETF, a complete index, such as the DAX replicated 1: 1. If the Dax rises by 3%, the Dax ETF rises by 3%. It allows you to take attractive returns of between 6 and 12% a year without taking as high a risk as with stocks. Our recommendation here is to open a depot and invest in one or more ETFs. You can find out how to open such a depot below.

4. Regular savings

If you, grandma and grandpa or someone else want to save money for your child on a regular basis, a depository is definitely suitable, but this time with one Regular Savings Plan, instead of a one-off system. You can of course also trade shares via the depot, for security reasons and especially for beginners, we recommend funds or fund savings plans. It is a long-term investment and is less risky than stocks. With a savings plan, you commit yourself to certain funds and pay a fixed amount (e.g. 25 euros) there every month. The profits can be reinvested automatically. Here, too, we recommend an ETF savings plan. You can find out how to set up such a savings plan and what to look for in the following section.

Statistics from the Deutsche Aktieninstitut show that investors have never suffered losses with a Dax index fund in the past five decades if they have kept it for more than twelve years. Over the course of 50 years, investors with German standard values ​​always achieved a return of 6-8% per year. Funds actually always pay off if you stay with them long enough.

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Christina Cherry
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