Image: Little boy with piggy bankThe topic of saving is especially important for young parents, because they want to know their children well secured for later. And that a child is not exactly cheap, most probably know well. The Federal Statistical Office has determined that a child up to the age of 18 costs around 130,000 euros. If a degree is added, parents can pay again. Then maybe the first own flat, the first car and the driver’s license will be added and then most parents will be very happy to be able to save their children from these high expenses. But what makes sense as a savings system in times of low interest rates and Co.?

In 1982, the world was still intact for savers: Whole grandparents or godparents received a whopping five percent interest when they took out a passbook for their charges. Anyone looking for a good investment for their offspring today, especially with top-rate money market accounts or with money market funds, has a higher interest rate and above all more flexibility. Which savings options are still paying off for children and which are less profitable, is shown below.

Fixed or overnight money account as a good alternative to the savings account

Many Germans do not want to miss their savings account and stick to it, although savings accounts currently achieve virtually no interest. What’s more, due to inflation, accumulated money in a savings account becomes even less over the years. The money is much better off on fixed or overnight money accounts, especially for offers with top conditions. For the Ansparphase recommended, for example, money market accounts with good interest rates, in which a certain amount of money is paid in monthly by the parents or grandparents. With good interest rates of around one percent, this is worthwhile in any case. It is even better if parents redeposit the money every 2 years on a time deposit account, because here the interest rates are even higher. However, one does not get his money over a term deposit account.

Compare daily and term accounts

A savings plan pays off

“Instead of a savings account with mini-interest rates, it is advisable to pay on a bank savings plan, which offers a rising interest or at the end of the term for savings and interest, a bonus,” says about Tanja Beller of the Association of German banks in Berlin. Anyone who wants to have a chance of higher returns and is prepared to take some risk for it, could instead choose a fund savings plan. “We recommend broadly diversified stock funds or exchange-traded funds (ETFs).” An ETF is a fund that trades on the stock market and usually reflects a stock index such as the DAX. ETFs cost less than an actively managed fund. But also ETFs are subject to the fluctuations in value of the stock market and can fall even once in the minuses.

It is therefore important to reduce the risk as much as possible. To do this, parents can distribute the money across different funds and invest it over a longer period of time – for example, over a period of 10 years or more to recoup the fund losses. When making a fund comparison, parents should also make sure that the fund offers include the lowest possible fees. It is therefore very worthwhile for parents to think about purchasing funds, since since 1996, funds invested in equities around the world have generated annual returns of nearly 6%. In general, Guido Syré, Managing Director of Verivox Finanzvergleich GmbH, summarizes this investment option as follows: “The Germans should overcome their aversion to equity funds. They belong to a balanced investment. “

Investment savings are often useful, but the prices can fluctuate here. “Investment accounts are more advisory and get used to, but they also bring higher returns,” says Steiner. Passbook, fixed-term accounts or day money accounts, on the other hand, spare the nerves: they never show less money on the paper than was deposited. Financial adviser Steiner appeals to all savers: “Professionally sound and neutral advice is the alpha and omega. Who wants to invest money, must read the terms and conditions carefully.”

Housing cooperatives offer attractive offers

If you are still looking for another worthwhile investment, you can also seek advice from your housing association – provided that you are a member of such and pay corresponding compulsory portions. The cooperatives offer their members sometimes better returns than many a bank and create offers of about 1 percent with a relatively short duration of only 2 to 3 years. This is in addition to the membership that you live in the catchment area of ​​the cooperative. However, parents must also take into account that for the offers appropriate fees are due, which should always be kept in view.

A training insurance is not advisable

From the conclusion of a training insurance – a form of capital-forming life insurance – advise consumer advocates rather. “These are two benefits: protection against the financial consequences of the death of parents or grandparents and a financial investment for the child,” explains Andreas Behn, Financial Services Consultant at the Consumer Center Thuringia in Erfurt. Sometimes a child’s accident or disability risk is hedged at a certain level. In other words, this is a form of capital-forming life insurance that, while not extremely risky, is less profitable.

“Such combinations are difficult and inadvisable, because they often do not adequately cover potential risks, and a price / performance comparison of the individual components is not possible.” Also, in the opinion of the Stiftung Warentest special child policies are not necessarily recommended. With these insurances the yield remains rather small due to high commissions and administrative costs. Under certain circumstances, however, such insurances can also play to their advantage, for example in the area of ​​old-age provision. However, if parents or grandparents want to spend money on their children and grandchildren, there are better and more effective forms of investment than these.

Take out term life insurance

Instead, Stiftung Warentest and Verbraucherzentralen advise to conclude a term life insurance with part of the money to be invested. Various products could be considered for saving on training – depending on the investment horizon, the required flexibility and the willingness to take risks, explains financial expert Behn. Savings plans with maturities between 4 and 18 years, for example, are suitable here.

If children are in the house, parents can also use the additionally available saver lump sums by a clever allocation and transfer of investments to the children. The investments must, however, be credible and irreversible in the name of the child. Bruno Steiner, financial adviser and member of the Association of Independent Financial Experts (BFP) adds: “Depending on the savings mentality, parents, grandparents or godparents should ask: for what purpose is it saved? How long is it a one-off or a monthly sum? How high is the risk?

Save on the name of children or parents?

Many parents wonder if it is better to invest the money for their offspring in their own name, or rather directly in the name of their children. Both variants have their advantages and disadvantages. If the investment runs in the name of the child, there is the disadvantage that the parents can not access the money directly. As soon as the child reaches the age of 18, he or she can fully access the money saved and, in the worst case, can forfeit it. The parents lose in this case any handle. One advantage, however, is that children or other family members also have a certain amount of free allowance, so the transfer of money to their accounts is well worth it. Because parents would lose these allowances if they invest the money in their own name. The basic allowance currently stands at 8,652 euros per annum and a saver exempt amount of 801 euros.

It should also be taken into account that children lose their entitlement to training aid in the form of BAFöG if their parents run savings agreements in their name that have a credit balance of 5,200 euros and more. In addition, all withholding tax and profits will incur a withholding tax so that there is a possibility that the monthly income will rise above € 405, which could be a problem with regard to non-contributory family insurance.

Which investment is the most suitable?

This question is not so easy to answer but depends on consumers’ individual needs and financial circumstances. For example, federal securities, savings bonds, bank bonds, corporate bonds or mortgage bonds may be a one-off investment for, for example, larger sums for baptism or confirmation. Bank spokeswoman Beller explains: “Here you have to concretely compare the current conditions (rating / credit rating, interest, terms, rates).” In general, when investing for children rather conservative securities, ie bonds or bonds with high credit quality are recommended.