Optimal Savings Options for Children: Securing Financial Future
22 May 2025
7
Minutes
Katrin Straub
CEO at nextsure
Financial planning for children raises many questions. Which savings options for children are truly worthwhile, and how can you establish a solid foundation with small amounts? This article presents practical methods and expert tips for successfully building your child's assets.
The topic in brief and concise terms
Early saving for children, ideally from birth, optimally benefits from compound interest and can build a fortune with just €25 a month.
ETF savings plans in the child's name offer long-term high return opportunities and allow the use of tax advantages such as the saver’s lump sum and basic allowance.
The money deposited under the child's name legally belongs to the child; parents manage it in trust, and at the age of 18, the child gains full control over it.
Start early: Make the most of compound interest for children
Starting to save early for children is crucial to maximising the effect of compound interest. Even small monthly amounts, such as 50 euros, can grow to a sum of over 17,300 euros over 18 years, assuming a return of five per cent. Many experts recommend starting to save right after birth to fully take advantage of an investment horizon of at least ten to 18 years. A long investment period allows for better balancing of short-term market fluctuations and benefiting 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 euros, or for university. Choosing the right educational savings plan for children plays an important role in this. This lays the foundation for financial freedom and security.
Classical methods: Evaluate secure savings options for the next generation.
Traditional savings methods offer a secure, albeit often less profitable, way of saving money. The classic children's savings book is typically used for early financial education, though it usually yields very low interest, often under one percent. Instant access savings accounts provide flexibility, as deposits and withdrawals can be made at any time, and the capital is protected by deposit insurance up to 100,000 euros. Fixed-term deposit accounts can be an option for larger one-off amounts, such as monetary gifts, since they offer fixed interest rates of up to four percent for an agreed term, for example, five years. These options are particularly suitable for safety-oriented savers who prioritise capital preservation. For comprehensive financial security for children, however, more profitable alternatives should also be considered to counteract inflation.
Increase your investment opportunities: Long-term wealth building with securities
For long-term wealth accumulation with higher return opportunities, securities such as equity funds or ETFs (Exchange Traded Funds) are suitable. ETF savings plans, which for example track a global stock index, offer broad risk diversification and have historically achieved average returns of about eight and a half percent per year over 18 years. A junior depot made in the child's name allows investments from as little as 25 euros per month. The costs for depot management are often low or completely waived, while transaction costs for savings plan executions can be less than 12 euros annually with some providers. Stiftung Warentest recommends ETFs as a good choice for long-term wealth accumulation for kids, as they are cost-effective and easy to maintain. It is worth considering how disability insurance for children fits into the overall strategy. Although these investment forms are subject to price fluctuations, they typically offer significantly better returns over long periods compared to traditional savings methods.
Here are some aspects in favour of ETF savings plans:
Broad risk diversification by investing in many companies simultaneously.
Low ongoing costs compared to actively managed funds, often under 0.5 percent per year.
High flexibility with savings rates, often possible from as little as one euro per month.
Attractive long-term return opportunities, historically often over seven percent per year.
Easy set-up and management, with many providers enabling completely digital depot opening.
The decision for the appropriate investment strategy depends on individual risk tolerance and savings goals.
State aid: Make smart use of tax benefits and allowances
The state supports saving for children through various tax advantages. Each child has their own savings allowance of 1,000 euros per year (as of 2024). Capital gains up to this amount remain tax-free if an exemption order is submitted to the bank. Additionally, each child has a basic personal allowance, which for 2024 is 11,604 euros. As long as the child has no significant personal income, capital gains up to approximately 12,820 euros (basic allowance plus savings allowance plus special allowance) can remain tax-free if a non-assessment certificate is requested from the tax office. Gifts from parents to children are tax-free up to an allowance of 400,000 euros every ten years. These regulations make saving in the child's name particularly attractive. It is also important to know whether the liability insurance covers through the parents. Using these allowances is an important building block for efficient wealth accumulation.
Practical Implementation: Define savings goals and involve children
The practical implementation of saving opportunities for children begins with defining clear goals. Are you saving for a driving licence (around €3,000), a gap year abroad (often over €10,000), or university studies (several tens of thousands of euros)? Depending on the goal and time horizon, different saving methods are suitable. It is advisable to involve children in the saving process in an age-appropriate manner. A piggy bank for small change can already give three-year-olds their first sense of achievement. Older children can understand how an ETF savings plan works if it is explained 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 €25 or €50 per month, are often more effective than irregular large sums. Also consider how a personal liability insurance for children complements financial security. A transparent and joint saving process promotes children's financial understanding.
The following steps help with implementation:
Set specific savings goals and time horizon (e.g., 18th birthday).
Select the appropriate investment form (e.g., ETF savings plan for long-term).
Open an account or depot in the child's name to utilise tax advantages.
Set up a tax exemption order or certificate of non-assessment.
Set regular savings rates and ideally automate them via standing order.
Inform and involve children, according to their age, about the purpose of saving.
Regularly review and adjust the saving strategy (e.g., every three to five years).
This structured approach facilitates long-term wealth building.
Legal aspects: Who owns the money and what needs to be considered?
For savings plans for children, it is important to know the legal framework. Money invested in the child's name legally belongs to the child. The parents or guardians manage the assets in trust until the child reaches adulthood. This means they may only use the money for the child's benefit, for example, for educational expenses. Use of the funds for the parents' own purposes is not permitted and may have legal consequences. On reaching the age of 18, the child gains full control over the accumulated assets. A significant amount of wealth can affect the entitlement to BAföG, as there is a wealth allowance (currently around 15,000 euros for those under 30). Additionally, free family health insurance in statutory health insurance can lapse if the child's own income is too high (e.g. from capital gains above a certain threshold). Also, address the issue of health insurance for your child. These aspects should be considered in long-term financial planning.
Long-term perspective: Adjust savings plans and keep goals in sight
Long-term saving for children requires a flexible strategy and regular review. Life circumstances can change, and savings goals may need to be adjusted. An ETF savings plan often offers the flexibility to increase, decrease, or even pause contributions for a period of time. It is advisable to review the chosen investment strategy every three to five years. Shortly before the planned withdrawal date, such as the 18th birthday, it may be wise to reduce risk. This can be achieved by gradually shifting riskier investments into safer forms such as fixed deposits to protect the accumulated assets from short-term market fluctuations. The average cost for a child up to the age of 18 is approximately 165,000 euros, highlighting the need for solid planning. Also, think about additional savings opportunities for children. A forward-looking and adaptable approach optimally secures your child's financial future.
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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 living costs for children.
Wikipedia offers a detailed overview on the topic of child benefits.
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 groups.
A recent study by the Deutsche Bundesbank examines the development of wealth in Germany.
FAQ
What is a junior account?
A junior account is a securities account opened in the name of a minor child. Parents or guardians manage it until the child turns 18. It allows investments in, for example, ETFs or stocks for the child's long-term wealth accumulation.
Does the money in the junior account belong to the parents or the child?
The money and securities in a junior account legally belong to the child. Parents may only use it for the child's benefit. Upon reaching adulthood (18 years), the child can freely dispose of it.
Can I use the child benefit directly for a savings plan?
Yes, the child benefit (currently 250 euros per child) can be used entirely or partially for a savings plan. This is a popular method to save regularly for the child.
What risks are associated with ETF savings plans for children?
ETF savings plans are subject to market fluctuations, meaning values can rise but also fall. However, in the long term (over ten to fifteen years), such fluctuations often balance out, and the potential returns are generally higher than those of safer forms of investment.
What happens to the accumulated savings if the child wants to apply for BAföG?
A child's own assets are offset against their entitlement to BAföG. There is an asset allowance (approximately 15,000 euros for those under 30). If the assets exceed this amount, the 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 can be paused, or lump sum payments can be made. The specific terms depend on the provider.
