Investment: How to save for your children

Heidelberg – A driving license costs between 1,000 and 1,700 euros. For a 3-year study, around 29,500 euros are due, if you extrapolate the monthly need of 819 euros, which has calculated the German student union. Children cost money – and many parents and grandparents want to do something long term from birth. The goal is to give the adolescents a greater amount of benefits. With these tips consumers reach this goal.

Image: Parents with their children in front of house

Start saving early

The most important tip: Start earning money as early as possible for your offspring. For example, anyone who saves something every month from birth can save considerable sums of money until the child is of age.

The classic savings account achieves little return

Especially grandparents often prefer the classic way of saving money and create a passbook for their grandchildren. The money is safe there, but it does not yield any returns – sometimes even no interest. Even the special conditions when setting up accounts for children are not very profitable.

How much inflation eats at low interest rates on the money, an example makes clear. Anyone who leaves 10,000 euros for 2 years in an account with zero percent interest, has at the end – if, for example, an inflation rate of 0.16% is taken into account – only 9,968 euros left.

Day and time deposit accounts are the safe bet

Better than the savings account are money market accounts with top conditions. Since the parents or grandparents currently receive interest rates of up to 0.7 percent and daily can dispose of the deposited money. Collect monthly deposits there.

Once a year or every two years, it is worthwhile to transfer the accumulated money to a time deposit account. There are even higher interest rates, currently around 1.5 percent. This results in a total investment of 10,000 euros in 2 years, around 300 euros interest – here, however, the eats the inflation rate currently at the savings. For more than 2 years, consumers should not set their money in the deposit, as the amount is not available during this time. If the long-awaited interest rate rise comes, savers should not miss him.

Fixed and overnight funds are very safe. Unlike stocks, there is no fluctuation. And in the event of a bank failure, all deposits up to 100,000 euros are protected by deposit insurance for each account holder. Responsible for this is the deposit insurance of the country in which the bank has its headquarters, and in an emergency, the state would probably jump in. Security-conscious savers therefore seek a bank from a crisis-proof country with a good rating from the rating agencies.

Funds: More return, more risk

Especially when it comes to the money of their children, parents want to take little risk. But then they would have to do without higher returns. If you want to increase your money, you can not avoid stocks and equity funds.

These may vary, but experience shows that time is playing cards for investors. Funds investing in global equities, for example, have achieved an annual return of nearly 6 percent over the past 20 years. In addition, the risk decreases the longer a customer retains an equity investment. This is confirmed by figures from the German Stock Institute, according to which investors who bought the DAX equity basket and held for at least 13 years or more were ultimately never in the loss area, but achieved a plus at maturity.

Tip: If possible, mix your investment funds to spread the risk and combine funds with other forms of investment such as a time deposit account.

Start a share investment with such funds that invest widely in large markets – for example, the worldwide index MSCI World or the German stock index DAX. As a basic investment exchange-traded index funds, the so-called ETF, are the most suitable, because they have low fees. ETF is also available as a savings plan, so parents or grandparents can make a fixed monthly contribution. Direct Banks offer such savings plans for selected ETFs at no additional cost for fund purchase and deposit.

A savings option for children are the offers of the housing cooperatives, provided that the parents meet some conditions for this. Partly, the cooperatives pay higher interest rates than one bank or another. For example, good housing cooperatives offer around one percent interest over a period of two to three years. The prerequisite for such a cooperative offer is, on the one hand, membership in a housing association and the possession of compulsory shares, for which dividends accrue annually.

Conclusion: A recommendation is that the parents put together a combination of several savings schemes and thus combine attractive returns and secure investments. If a part of the money is paid into a daily account and from time to time shifted into fixed-term money and the other part flows into a fund savings plan, the offspring can look forward to a decent amount.

Special training insurance is rather not recommended

Training insurances are not recommended because they are not flexible and the return is low.

Save on the name of the child, parents or grandparents?

Actually, it is recommended to invest money in the name of the child. Because children have their own allowances. Thus parents benefit from the tax benefits when investing in the name of their child.

On the other hand, parents can no longer dispose of the money freely because the money belongs to the child. This is particularly spicy when the scion is of legal age and would rather spend the money for a dissolute party instead of studying. Full access to the money has parents or grandparents if they save on their name.

In addition, the child is credited a fortune over 5,200 euros on the student loan.