Optimal savings opportunities for children: securing their financial future
22.05.25
12
Minutes
Katrin Straub
Managing Director at nextsure
Financial provision for children raises many questions. Which savings options for children are really worthwhile, and how can you build a solid foundation even with small amounts? This article shows you tried-and-tested practical ways and expert tips for successfully building up your child’s wealth.
The topic in brief and concise terms
Saving early for children, ideally from birth, makes the most of compound interest and can build up wealth with as little as €25 a month.
ETF savings plans in a child’s name offer strong long-term return potential and allow tax advantages such as the savers’ allowance and basic tax-free allowance to be used.
Money deposited in the child’s name legally belongs to the child; parents manage it in trust, and at 18 the child gains full control over it.
Start early: Make the most of compound interest for children
Starting to save for children early is crucial to make the most of the compound interest effect. Even small monthly amounts, for example €50, can grow to more than €17,300 over 18 years, assuming a return of five per cent. Many experts recommend starting to save directly after birth in order to fully use the investment horizon of at least ten to 18 years. A long investment period makes it possible to better offset short-term market fluctuations and benefit from long-term growth trends. This early provision creates a solid financial foundation for your child’s future, whether for a driving licence, which can quickly cost €3,000, or for university studies. Choosing the right education savings plan for children plays an important role here. This is how you lay the foundations for financial freedom and security.
Classic options: Review secure savings products for children
Traditional savings products offer a secure, albeit often less lucrative, way to save. The classic children's savings book often serves as an introduction to money, but usually generates only low interest, often below one per cent. Instant access savings accounts offer flexibility, as deposits and withdrawals are possible at any time and capital is protected by deposit guarantee schemes up to €100,000. Fixed-term deposit accounts can be an option for larger one-off amounts, such as cash gifts, as they can offer fixed interest rates of up to four per cent for an agreed term, for example five years. These options are particularly suitable for security-conscious savers who place value on preserving capital. However, for comprehensive protection for children, higher-yield alternatives should also be considered in order to counter inflation.
Boost return potential: Long-term wealth accumulation through securities
For long-term wealth accumulation with higher return potential, securities such as equity funds or ETFs (Exchange Traded Funds) are suitable. ETF savings plans, which for example track a global equity index, offer broad diversification and have historically achieved average returns of around eight and a half per cent per year over 18 years. A junior account held in the child’s name makes it possible to invest from as little as €25 per month. The costs for account management are often low or disappear altogether, while transaction costs for savings plan executions can be below €12 per year with some providers. Stiftung Warentest recommends ETFs as a good choice for long-term wealth accumulation for children, as they are low-cost and easy to maintain. It is worth considering how a disability insurance for children fits into the overall strategy. While these investment forms are subject to price fluctuations, over long periods they usually offer significantly better return prospects than traditional savings products.
Here are some aspects that speak in favour of ETF savings plans:
Broad diversification through investing in many companies at the same time.
Low ongoing costs compared with actively managed funds, often below 0.5 per cent per year.
High flexibility when it comes to savings rates, which are often possible from as little as €1 per month.
Long-term attractive return potential, historically often above seven per cent per year.
Simple setup and administration, with many providers offering a fully digital account opening.
The decision for the right investment strategy depends on individual risk tolerance and savings goals.
Government support: making clever use of tax benefits and allowances
The state supports saving for children through various tax advantages. Each child has its own saver’s allowance of EUR 1,000 per year (as at 2024). Capital income up to this amount remains tax-free if an exemption order is submitted to the bank. In addition, each child has a basic tax allowance, which is EUR 11,604 for 2024. As long as the child has no significant income of their own, capital income of up to around EUR 12,820 (basic tax allowance plus saver’s allowance plus special expenses allowance) can remain tax-free if a certificate of non-assessment is applied for at the tax office. Gifts from parents to children are tax-free up to an allowance of EUR 400,000 every ten years. These rules make saving in the child’s name particularly attractive. It is also important to know whether the liability insurance through the parents applies. Making use of these allowances is an important building block for efficient wealth accumulation.
Practical implementation: defining savings goals and involving children
The practical implementation of saving options for children begins with defining clear goals. Are you saving for a driving licence (approx. EUR 3,000), a year abroad (often over EUR 10,000) or university studies (several tens of thousands of euros)? Depending on the goal and time horizon, different savings options are suitable. It is advisable to involve children in the savings process in an age-appropriate way. A money box for loose change can already give three-year-olds their first sense of achievement. Older children can understand how an ETF savings plan works if you explain it to them with simple examples, such as that they own small shares in many large companies. Opening a junior account is possible online with many providers, but requires the consent of all legal guardians. Regular small amounts, such as EUR 25 or 50 per month, are often more effective than irregular large sums. Also consider how personal liability insurance for children complements financial security. A transparent and shared savings process promotes children's understanding of finances.
The following steps help with implementation:
Set specific savings goals and a time horizon (e.g. 18th birthday).
Select the right investment product (e.g. an ETF savings plan for the long term).
Open an account or depot in the child's name to take advantage of tax benefits.
Set up an exemption order or non-assessment certificate.
Set regular savings instalments and, ideally, automate them by standing order.
Inform and involve children in the purpose of saving in an age-appropriate way.
Review and adjust the savings strategy periodically (e.g. every three to five years).
This structured approach makes long-term wealth building easier.
Legal aspects: Who owns the money and what should be considered?
When saving for children, it is important to be aware of the legal framework. Money invested in the child’s name legally belongs to the child. The parents or legal guardians manage the assets in trust until the child reaches the age of majority. This means they may only use the money for the child’s benefit, for example for education costs. Using it for the parents’ own purposes is not permitted and may have legal consequences. On their 18th birthday, the child gains full control over the savings. A substantial amount of the child’s assets can affect entitlement to BAföG, as there is an asset allowance (currently approx. EUR 15,000 for under-30s). Free family insurance in statutory health insurance can also lapse if the child’s own income is too high (e.g. from investment income above a certain threshold). Also clarify the question of health insurance for your child. These aspects should be taken into account in long-term financial planning.
Long-term saving for children requires a flexible strategy and regular review. Circumstances can change, and savings goals may need to be adjusted. An ETF savings plan often offers the flexibility to increase, reduce or even pause contributions for a period of time. It is advisable to review the chosen investment strategy roughly every three to five years. Shortly before the planned payout date, for example on the 18th birthday, it may make sense to reduce risk. To do so, higher-risk investments can be gradually shifted into safer forms of investment such as fixed-term deposits, to protect the assets accumulated up to that point from short-term market fluctuations. The average cost of raising a child to the age of 18 is around EUR 165,000, underlining the need for solid planning. Also consider other saving options for children. A forward-looking and adaptable approach provides the best possible safeguard for your child's financial future.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific recommendations for optimisation.
More useful links
The Federal Ministry of Finance offers comprehensive information on financial education.
The Consumer Advice Centre provides information on sensible saving strategies for children and grandchildren.
The Federal Statistical Office (Destatis) provides current data on consumer spending and the cost of living for children.
Wikipedia offers a detailed overview of child benefit.
The Deutsche Bundesbank provides extensive teaching materials to promote financial education.
The Federal Agency for Civic Education (bpb) offers insights into the distribution of wealth in Germany by age group.
A recent study by the Deutsche Bundesbank examines the development of wealth in Germany.
FAQ
What is a Junior Depot?
A Junior Depot is a securities account opened in the name of a minor child. Parents or legal guardians manage it until the child turns 18. It makes it possible to invest in e.g. ETFs or shares for the child's long-term wealth accumulation.
Does the money in a Junior Depot belong to the parents or the child?
The money and securities in a junior depot legally belong to the child. Parents may only use them for the child’s welfare. Once the child reaches the age of majority (18), they can freely dispose of them.
Can I use child benefit directly for a savings plan?
Yes, child benefit (currently EUR 250 per child) can be used in full or in part for a savings plan. This is a popular way to save regularly for a child.
What risks are associated with ETF savings plans for children?
ETF savings plans are subject to market fluctuations, i.e. values can rise, but also fall. In the long term (over ten to fifteen years), however, such fluctuations often level out and the potential returns are generally higher than for secure forms of investment.
What happens to the accumulated assets if the child wants to apply for BAföG?
The child's own assets are taken into account when calculating BAföG entitlement. There is an asset allowance (approx. €15,000 for those under 30). If the assets exceed this, BAföG entitlement may be reduced or cease altogether.
How flexible are savings plans for children?
Many savings plans, especially ETF savings plans, are very flexible. Contribution amounts can often be adjusted, payments paused, or one-off payments made. The exact terms depend on the provider.
