How can I invest or save better for my child?

You want to give your children a nice chunk of capital to get them started in their adult lives. But are you clinging to the traditional way of saving for your child, or are you broadening your savings horizons and would consider investments? We look at both options.

Why should I save for my child?

Traditional ways of saving for your child are still a popular option. These have a number of benefits, but you should be aware that there are also several points to consider. First, an overview of the most important points to keep in mind:

The benefits of traditional saving:

• Financial security A savings account is a safe place to set money aside for your child’s future, such as for higher education or buying a first home. • Guaranteed growth The interest rate on a savings account may be low, but it is always there. This means the money in your savings account is guaranteed to increase, even if it is only by a few euro per year. • Simplicity and accessibility It is simple to open and manage a savings account for your child. Often, all it takes is a few clicks in your bank app! In addition, the money in the account is always available.

The main points to think about for traditional savings:

• Returns are usually limited The main challenge with traditional savings in the current economic climate is their low interest rates. At many banks, the rate is actually below 1%. As a result, your money grows at a very slow pace. • Effects of inflation Although your savings are safe, the value of your money may fall due to inflation. For example, in future you will not be able to buy what you can buy today for the amount you have saved.

What are my options if I want to open a savings account?

Despite the low interest rate, a savings account is still a big favourite among young parents. This is especially so because it is simple and safe. Ask yourself a few questions before opening an additional account like this. • How long do you want to keep saving? Have you fixed the period in advance or haven't you set a time limit? • How much do you want to put into your savings account each month or year? • In whose name will you open the savings account? If you open an account in your child’s name, the money in that account belongs to your child. You can deposit money into it regularly, but it is not always possible to withdraw money. And when your child turns 18? In that case, you will no longer have any control over the account, and the money you saved will automatically go to him or her. If you have an account in your own name, you maintain full control. You decide if you withdraw any money from the savings account, and when you give it to your child. Are you planning to make a gift of over EUR 6,633 (per child) in 2024? If so, you will have to pay gift tax. What if you die before you have given them the money? Your child will have to pay inheritance tax on it.

The earlier you start saving or investing, the more you stand to gain. Your little darlings will thank you for doing so on their 18th birthday!

Would it be better to invest?

Investments have been rising steadily in recent years. But is this really a smart choice for your child? Absolutely! Of course, there are several points you need to think about.

The benefits of investing for my child:

• Better returns Compared to traditional savings, investing offers a better chance of a higher return. • Time is money The earlier you start, the greater the effect of compound interest. This helps your capital to keep growing faster and faster over an extended period of time. Maybe you can start investing right from their birth? In this case, the effect and the return over 18 years will be much greater than if you only start 12 years later, for example.

Things you need to think about before investing:

• Risk The main consideration with investing is that it can involve certain risks. The value of your investment may fluctuate – both upwards and downwards. What's more, there is no guarantee of a high positive return. • A little more preparatory work is needed Investing is rather more complex than traditional savings, so seeking out professional advice is a good idea. It is also best to continue to keep a close eye on the fluctuations in your returns. • Patience You need to be very patient to achieve the best returns. Investments yield the most over the long-term. Only invest an amount that you can manage without for several years.

What are my options if I want to invest?

You can choose to invest on the stock exchange yourself – using an intermediary. However, this requires knowledge, time and careful monitoring. Then there are investment funds. This is a way to pool financial resources from multiple investors. The fund then invests these in a mixed portfolio of equities, bonds or other financial assets. The point? You can spread your investments without having to invest personally in all the different options that make up a fund’s portfolio. First, you determine the time period for your investment fund, how much you want to invest and in whose name you set up the fund. Once again, this can be in your name or in the name of your child. The same rules apply as for a savings account. Be aware that you can start investing with small amounts depending on the bank and plan you choose. You can do this from as little as EUR 10 per month or EUR 25 per year, as in our Keyplan for Kids. The difference to a savings account is that you first need to choose a risk level before choosing an investment fund. The higher the risk, the higher the potential return. Will you choose the highest level of risk when the value of the assets that the fund invests in will fluctuate? It may earn you the most. Or would you prefer a more limited risk? Your return will then also be limited. Be aware that because a fund spreads your investment across different shares and bonds – not placing all its bets on a single player – your risk is automatically limited and any falls in value will be evened out over the long term.

Should you invest or save for your child? It’s up to you!

Conclusion: you have 2 good options on the table, each with its own advantages and possible obstacles. A traditional savings account involves low risk, but the return is also limited. While an investment fund means you have to expect investment risks, it can also provide better returns in the long term. Do you have enough capital available and can you manage without the money for several years? In this case, investing is likely the best option. If you do not have this available, a savings account may be better. Want to find out more about how much an investment fund will actually pay out? Calculate it now with our simulator! Calculate now