Series children and money, part 1: give money as a gift? But right!

Matthias Urbach

It does look a bit uncharitable. But better, the children get money as a gift, instead of some trinkets. The good thing about money: kids learn what they really need when they manage their own bills and coins. And for example choose and buy their bike themselves (according to their budget) instead of finding it under the Christmas tree.

Also popular among grandparents and godparents is the savings account, where something is set aside month after month for the very youngest children. Because the big wishes are bound to come: The year abroad, the trip after school, the driver’s license.

Because a lot can go wrong even when saving, here are our tips for investing money for children. Let’s start with the very small ones:

1. The savings book for the birth

Some set up a savings plan at birth. 25 euros a month is easy to spare, and if it continues for 18 years, 5.400 Euro together. Minus costs, plus return. And with the yield it hakt at the moment.

For a long time, the savings book was common, often with extra premiums. Such premium savings plans still exist. Although the premiums grow over the years to more than 10 percent for the respective deposit. That sounds a lot, but converted to the entire savings contract, the return on such contracts currently remains well below one percent as a rule.

You can achieve higher returns with a low-cost securities account and a share savings plan. To keep the risk manageable, you should choose an ETF on a broad-based index. We recommend the world stock index MSCI World. Or the MSCI World SRI, if investing in sustainable companies is important to you. The cost of our recommendations is less than 20 euros per year at a good direct bank.

There are always ETF savings plans that are offered free of charge for a while, examples can be found in our table. But these offers rarely last longer than a few years. Who invests for its children in shares, should save anyway longer than ten years on it, in order to ride out the fluctuations at the stock market.

2. The account for the first cash

If you give children of elementary school age money for their birthday or at Christmas, you probably give them cash. So that this does not get away, a free child account is recommended. Here and there, children even get interest on it like in the old days: For example, the Hamburger Sparkasse pays an astonishing 3 percent interest on the "mice account. However, only up to 500 euros and up to 14. Year of life.

The Stiftung Warentest found in its current overview (costs 3 euros) after all 25 Volksbanken, savings banks and banks that offer more than half a percent interest for children’s balances. This is not the rule. But at least most banks offer free accounts for their children.

3. The map for teenagers

Needs change with age. Teenagers sometimes save up for a more expensive item such as a smartphone and then appreciate gifts of money very much. The demands on the account also change. The school trip to Croatia, the vacation camp in Poland, the visit to the aunt in England: At the latest, when your offspring leave the Eurozone, most children’s accounts reach their limits. Then the teenagers need a credit card with which they can withdraw abroad for free. This drastically limits the choice. We recommend the accounts of Commerzbank and DKB*. They are completely free up to 17 years, offer free withdrawals abroad – even without a foreign currency fee. However, Commerzbank takes from 18 years for the credit card directly 40 euros a year. Alternative: With the online subsidiary Comdirect* this does not happen, but foreign currency fees apply. The only catch with DKB: at least one of the two parents must also have an account there. This is free of charge.

4. Watch the tax

The question of the right account already arises with the securities account for newborns. It is a good idea to invest the money directly in the child’s name. Because the money should belong to him. And each child has its own saver’s allowance of 801 euros per year. It is important to apply for a corresponding exemption order, otherwise the bank will automatically deduct taxes. In principle, your child can even earn 10.005 euros in tax-free returns, provided you obtain a non-assessment certificate for the child from the tax office. (However: from 445 euros a month, the health insurance company requires a separate insurance for the child – but over 5.000 Euro return per year would also be quite a lot.)

5. A gift is a gift

If you invest the money in the name of your children, you are not allowed to spend the money for the child’s maintenance, not even for the school trip. Conversely, in contrast to the current account, the children themselves cannot access the deposit until they are of age. All our recommendations for adults set up such junior deposits for minors. By the way, DKB and Comdirect are also among them.

There are two models for the savings plan costs: Either as a percentage of the investment amount or fixed. For a savings rate of 25 euros, you should choose a securities account with percentage fees; for 100 euros, those with fixed prices are worthwhile.

6. Do not take out insurance

Insurance brokers, but also bank advisors, always offer education insurance or life insurance for children. This is lucrative for the provider, but not for you: commissions are so high that it takes a long time before there is any return at all for your child. In any case, it is better to invest the money yourself.

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