passbook & Savings account for children – what should be considered?
In almost all families it exists in some way: the savings book or savings account for children. Created for the birth of the child or at some other time afterwards, the grandparents, parents or all together make continuous payments until the child can freely dispose of it at a late teenage age or at the age of eighteen. Mostly to finance the driver’s license, study or generally to support the start of independent life after school. But what needs to be considered if such a savings book is to last up to 16-18 years and then dissolve it? And there are special offers for such a savings book or savings account?
This guide focuses on these questions and shows what needs to be considered when choosing an account. Since it is usually the grandparents who open a savings account or savings book for the grandchild, we concentrate on exactly this case.
Critical questions at the beginning
First of all, we would like to start with critical questions about savings accounts or savings accounts for children. Because what used to be common practice can now be questioned due to many influences.
In view of the historically low key interest rate in 2016 and the following, for example, the first question is whether a savings book or savings account for the child is still worthwhile or whether you can not simply support it with cash at a given time when there is hardly any interest anyway. Not a bad objection, because mostly only small amounts are transferred per month, which is why there has only been a real fortune in the account in recent years that may be worth the interest. Otherwise there are only cents.
There is also the question of what, given deflation and inflation, all the money saved is still worth it in the 16-18 years. Nobody can predict such a long period of time, least of all economically. It is no secret that a change can happen quickly given today’s structures. We remember various financial crises and their consequences for the existing structures.
And one thing that nobody can predict is that the child could senselessly squander the fortune upon receipt. Of course, this is more about raising children and raising awareness of money and upcoming important expenses. It is also essential to enter that only the child will later receive the account assets before there are any discrepancies.
Special offers or ordinary savings accounts?
Once the questions have been clarified and it is clear that a savings book or savings account should be opened for the grandchild, there are two options. All banks have various offers for child savings in the program. It depends on the bank whether there are any special savings offers for the grandchild. Otherwise, normal models, which we will come to shortly, are also very suitable. Regardless of the exact account model, there are two options for you as a grandparent.
Own account for the youngest
Once you can use a savings book or savings account sole access right open where you have the grandchild as third beneficiary registered, but otherwise have sole power of attorney without an additional regulation. In the event of premature death, it is then also regulated who receives the previously saved assets. The advantage here is a significant one easier opening, where it is only and only your signature as well as a clause in the contract for the benefit of the child. Without the clause, it is legally uncertain that the child will definitely get the money later. Birth certificates and signatures of the child’s parents are not necessary. In addition, the child knows nothing of the account and the assets can be handed over as a great surprise, for example, on the eighteenth birthday. With regard to the flat-rate withholding tax, make sure that you pay tax from the limit of EUR 801 or EUR 1,602 if you jointly assess the interest paid out. In order to be free of tax payments within the stated exemption limits, an exemption application is required, which your bank can help with. The gift tax should not be an issue, since the grandchild can receive amounts of up to 200,000 euros tax-free.
Account with grandchild as owner
The second option would be to have a savings account or savings book Ownership of the grandchild to open. However, the surprise effect is very likely to disappear and the account opening is also required Signatures of all legal guardians not so easy anymore. In addition to the signature, some banks require double PostIdent procedures to birth certificates, marriage certificates or custody notices further extras and documents. In most cases, as a grandparent, you then have the option of making a direct payment to the account. If that doesn’t work, the only way is through the parents. As long as the grandchild is a minor, the parents can access the account at any time using a power of attorney, which you as a grandparent may not like. When the child reaches the age of majority, the power of attorney automatically expires and your grandchild can fully access the money. With regard to taxes, the application for exemption for the flat-rate tax must also be observed here. The gift tax has different levels of exemption, but is probably not an issue here either.
Which account types are suitable for saving for the grandchild?
You are free to choose which of the two variants mentioned above. However, the first way is recommended, if only because of the uncomplicated opening. In the following we will deal with various products that can be used as savings accounts or savings accounts for children.
Day money account
Actually, interest rates are currently so low that a call money account is hardly worthwhile. But nevertheless it is the most chosen and actually the most sensible way to save for the grandchild. A call money account actually works like a current account with better interest rates and often also guarantees interest. There are no account management fees or other costs and the amount in the account is at least partially interest-bearing. With regard to interest rates, it is worth comparing other banks or providers if no overnight money account is to be opened at the house bank. For example, if you transfer 20 euros a month to this account, you could hand over up to 4,320 euros to the grandchild at the right time. Add to that the amount of interest accumulated over the years. The transfer works individually as well as a standing order. One last advantage is that you do not have to invest a large amount immediately, but the amount in the account increases continuously month by month. The account can be canceled at the desired time.
Fixed deposit account
The time deposit account does not offer such flexible account management as the overnight deposit account and cannot be increased in between. Do you already have a fixed amount, e.g. 1,000 euros remaining and want to invest this, the time deposit account is a good option. A fixed term is agreed here, i.e. the remaining time until the grandchild’s 18th birthday at the latest. The account is then fixed and cannot be canceled beforehand. The amount is credited to the account and continues to earn interest over the years. It is usually not possible to increase the amount. It should also be noted that, despite the fact that the interest is higher than for savings or savings accounts for children, the amount paid out later will be lower. It is only from the interest that an amount can be accumulated that is as large as the continuous growth per month. You can see that a time deposit account is not as good as a overnight deposit account. If you still want to go this route, you can inquire at your house bank or compare other offers in online comparisons.
Payment schedule (for time deposits)
If you opt for fixed deposits, you can – in order to prevent the problem that the money is immediately spent in full in a senseless manner when paying out – you can set up a payout plan. The saved money is then paid out monthly or quarterly from a certain point in time. If, for example, the study is financed, the necessary grant can be secured over a longer period.
TreeSavingsPlan
No, we have not committed ourselves. This system is really not a building savings plan, but trees. You can support afforestation in Panama for 360 euros and with 12 trees per year. This is possible every year. After 25 years, the woods are extremely valuable and bring good yields, which the grandchildren themselves can save. Although this is not the traditional way of making monthly payments and handing over the increased amount by the 18th birthday at the latest, it is a nice alternative with an ecologically correct, sustainable and sensible effect. In addition, the return is much higher than with all banking products that are currently offered.
Education insurance
Training insurance can also be found away from the banks, but is generally advised against. This is a capital life insurance with monthly savings. The grandchild receives the amount at the beginning of vocational training or studies. If there should be a death beforehand, the insurance will take over the further payment. But, as is so common with insurance, insurance has little return at a relatively high cost; namely the amounts paid in. There is no interest or value increase as with the other options.
There is a free current account with Norisbank for the overdraft facility
Conclusion: savings book or savings account for grandchildren
Basically there are no great barriers to saving for grandchildren or saving for children. You should go straight to the bank with the destination of the new account and it will do the opening accordingly. We recommend opening the account yourself. It is up to you whether you choose call money, time deposit or one of the two alternatives.
Due to the maximum flexibility and the continuous deposit, we definitely recommend the overnight allowance account and advise against training insurance. We also advise against fixed deposits, because the final amount is quite small without a substantial deposit. The tree savings plan is a nice and alternative idea, although the exact return is not known here. A disadvantage could be that the money can definitely not be handed over to the grandchild on the eighteenth birthday at the latest, but only arrives gradually later each year. So it is not a classic savings book or savings account for children and grandchildren, but neither is it bad. Given the interest rate situation, it is higher "profit" even better.
What experiences have you had? – Let us know in the comments!
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