Education savings: setting the financial course for your child's future wisely
19.06.25
5
Minutes
Katrin Straub
Managing Director at nextsure
A good education is often associated with high costs that stretch many families’ budgets. With thoughtful education planning, you can secure your child’s future career prospects financially. Find out how you can set the course for tomorrow today.
The topic in brief and concise terms
Early education savings planning, ideally from the child's birth, makes optimal use of compound interest and reduces the monthly burden.
Calculate the expected education costs realistically and compare different savings options such as education insurance policies, ETF savings plans and bank savings plans in terms of returns, costs, flexibility and security.
Incorporate protection in the event of the death or disability of the main earner, so that the savings goal can still be achieved in an emergency.
Education provision at a glance: the key facts
An education savings plan is intended to create the financial foundation for your child’s education or studies. The costs involved can be considerable; according to the German Students’ Union, a degree often costs more than 800 euros per month. Early planning is therefore crucial. Many parents underestimate the total costs of a multi-year education. There are various ways to save capital for this purpose, from traditional savings products to specialised insurance solutions. Choosing the right strategy depends on your willingness to take risks and your financial means. Early education savings planning is the key.
State subsidies can supplement private provision. These include child benefit, for example, which can be paid until the age of 25 if the child is in education. Vocational training allowance (BAB) and BAföG are also possible forms of support, although entitlement depends on various factors. These state benefits often cover only part of the costs. A private education savings plan is therefore essential for many families in order to avoid financial shortfalls. Ideally, planning should begin when the child is still young, so as to benefit from compound interest over many years.
Practical guide: realistically calculating training costs and defining savings targets
To find the right education savings plan, a realistic calculation of future costs is the first step. Including living expenses, a degree can quickly cost 40,000 to 50,000 euros over a period of five years. Take into account tuition fees, rent, study materials and general living costs. Define a clear savings goal and time horizon. The earlier you start – ideally from the child's birth – the lower the monthly savings contributions can be to reach the goal. For example, monthly contributions of 50 euros over 18 years can already add up to a considerable sum.
A calculation example makes this clear: suppose you want to save 20,000 euros for your child's education in 18 years. Without interest earnings, you would need to set aside around 92 euros per month. With an average annual return of three per cent, the monthly amount saved is reduced. There are various savings options for children that you should consider. Here is an example list of possible cost items:
Semester contributions or tuition fees: 100 to 500 euros per semester.
Rent for a room in a shared flat: 300 to 600 euros per month, depending on the city.
Study materials (books, software): 50 to 100 euros per semester.
Living costs (food, clothing, leisure): 300 to 500 euros per month.
Travel costs: 50 to 150 euros per month.
These figures highlight the need for long-term financial planning for education savings. The exact amount required depends heavily on the choice of degree and the place of study.
Compare options: Which type of education savings plan is right for you?
There are various products for education savings, from bank savings plans and fund savings plans to special education insurance policies. Classic education insurance policies are often a form of endowment life insurance. They guarantee a specific sum at the start of education and often include risk cover in the event that the policyholder dies. The returns on classic policies are often low, however, and the costs comparatively high. Unit-linked variants offer higher return potential, but also carry market risks.
An alternative is ETF savings plans, which often offer attractive long-term returns at comparatively low costs. This involves investing regularly in exchange-traded index funds. This form of family protection is flexible, as deposits and withdrawals are often straightforward. However, bear in mind that the capital could also be used for other purposes if needed, which requires discipline when saving. Comparing different products is essential. Pay attention to the following criteria:
Return potential: How high is the expected performance?
Costs: What initial and administrative costs are incurred?
Flexibility: Are additional payments or withdrawals possible?
Security: Are there guarantees or risk protection?
Tax aspects: How are returns taxed?
The decision in favour of the right education savings plan is very individual. Careful weighing up of the pros and cons of each option is crucial for long-term success.
Expert knowledge: Legal and tax aspects of education savings
When planning for education, legal and tax framework conditions also play a role. Funds invested in the child’s name legally belong to the child. Once they reach the age of majority, the child can dispose of them freely. This can be an advantage, but it also carries the risk that the money will not be used for its intended purpose. Our expert tip: Clarify ownership and disposal rights at an early stage. With certain types of investment, such as an education policy, the child is often the beneficiary, while the parents or grandparents are the policyholders.
From a tax perspective, parents may be able to claim the education allowance under certain conditions if the adult child is living away from home and is in their first vocational training programme. This allowance currently stands at EUR 1,200 per calendar year. Returns from investments for children are generally taxable, although the saver’s allowance and, where applicable, a certificate of non-assessment can be used. In the case of payouts from certain insurance products, tax advantages may apply in some circumstances if the contract had a minimum term of twelve years and the payout is made after the policyholder reaches the age of 62. A careful review of the tax implications is advisable in order to structure protection for children optimally.
Integrate risk cover: What happens in the event of a claim?
A key aspect of education provision is cover in the event that something happens to the main earner or policyholder. Many education insurance policies include continued payment of contributions in the event of the provider's death. This means the insurance continues to pay the premiums, so that the savings goal is still achieved. This cover offers important security for the child's future. Alternatively, separate term life insurance can be taken out to protect the family and therefore also the education costs. The costs for this are often lower than for combined products.
Disability insurance for the breadwinner can also indirectly protect education provision. If the main earner's income is lost, savings plans can often no longer be maintained. Some education insurance policies optionally offer exemption from premium payments in the event of the provider becoming unable to work. It is important to take these risks into account when planning cover in the event of the parents' death and to find suitable solutions. The amount of cover required should be calculated individually. Weigh the costs and benefits of the various cover options carefully.
Long-term perspective: Start early and stay flexible
The key to a successful education savings plan lies in starting early. The sooner you start saving, the more the compound interest effect works in your favour, and the lower the regular savings instalments can be. With just €25 a month, you can build up a considerable sum over a period of 18 to 20 years. Flexibility is another important factor. Circumstances can change, so you should choose a savings product that allows for adjustments. This includes the option of making additional payments, for example when receiving gifts of money for starting school or First Communion, as well as the option to adjust contributions or take payment breaks.
Review your investment strategy regularly, for example every three to five years, and adjust it if necessary. Shortly before the planned payout date, it may make sense to switch return-oriented investments to more secure forms of investment in order to protect the accumulated capital from short-term market fluctuations. Remember that education savings is a long-term project. Patience and discipline are just as important here as choosing the right product. Comprehensive advice can help you develop the optimal strategy for your individual situation.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific suggestions for improvement.
More useful links
KfW offers information on student loans and qualification programmes.
The Federal Employment Agency provides information on eligibility, amount and duration of child benefit in Germany.
The Federal Ministry of Finance provides information on the child allowance.
FAQ
What is the difference between an education insurance policy and an ETF savings plan for children?
An education insurance policy is often an endowment life insurance or pension insurance policy that pays out a guaranteed sum at a specific point in time and usually includes risk cover (e.g. in the event of the provider's death). An ETF savings plan invests regularly in exchange-traded index funds, offers higher return potential at usually lower costs, is more flexible, but generally does not include direct insurance cover and is subject to price fluctuations.
Can grandparents also take out an education savings plan for their grandchildren?
Yes, grandparents can also set up education provision for their grandchildren, for example by taking out an education insurance policy as the policyholder or by setting up a savings plan in the grandchild’s name or in their own name, with the grandchild as the beneficiary.
What happens to the education savings plan if my child decides not to study after all?
That depends on the savings product chosen. With flexible investment products such as ETF savings plans or bank savings plans, the capital saved can usually also be used for other purposes, e.g. for a driving licence, a first home or as start-up capital for self-employment. With education insurance policies, flexibility is often lower, but withdrawals or cancellation (possibly at a loss) are usually possible.
How does an education savings plan affect entitlement to BAföG?
A child’s savings, including from an education savings plan, are taken into account when calculating BAföG entitlement and may reduce or exclude it if they exceed certain allowances. It is advisable to obtain up-to-date information on this, as allowances can change.
What tax advantages are there with education savings?
Parents may, in certain circumstances, claim the training allowance (currently EUR 1,200 per year) if the adult child lives away from home and is undertaking training. Income from capital investments is taxable, although the savings allowance and, where applicable, a certificate of non-assessment may be used. For certain insurance payouts after a long term (at least twelve years) and from the age of 62, earnings may be half tax-free.
How high should the monthly savings contributions for saving towards education be?
The amount of the monthly savings contribution depends on the desired savings goal, the investment horizon and financial means. Even with small amounts of 25 or 50 euros per month, it is possible to save up a significant sum over many years. An individual calculation is recommended.
