The range of services offered by the banks covers the entire spectrum of savings products. However, the changing times do not stop at traditional savings plans – if building loan agreements and savings books were the favorites in the past, now they are certainly also securities savings plans.
How does a savings plan for children work?
The first step towards a savings plan for children is to open an account or deposit for the child. There are 2 options:
- The person who sets up the savings plan – parents, grandparents or aunt and uncle – opens it in their own name. You can enter a right of disposal for the child as the beneficiary on a specific date.
- The child savings plan is immediately set up in the child’s name. Because even if the child is not yet legally competent, it is still the legal owner of the credit. Parents are, of course, authorized to represent them until they are of legal age.
TIP: If you decide in favor of a securities savings plan, choose a bank that offers free custody accounts and waives the issue surcharge for investment funds.
Who is a child savings plan for?
Quite simply: for everyone who wants to build up a financial cushion for the youngsters at an early stage. Security-oriented savers can rely on classic savings plans with fixed interest rates. Opportunity-oriented investors, on the other hand, often achieve more returns with fund savings plans , but the risk of loss due to price fluctuations is also higher. Long-term planning makes it easier for you to build up your wealth and later on it will enable your child to more easily fulfill wishes such as a car or their own apartment. It is not specified who exactly is allowed to set up a savings plan for children. Of course, it is traditionally the parents or grandparents who set up a savings plan for their children or grandchildren. The sponsors can just as easily lay a financial foundation for their sponsored children.
What are the advantages of a savings plan for children?
In general, savings plans offer you the opportunity to gradually build up a small fortune through long-term, continuous savings. Parents whose children are studying know that studying can be expensive. Another advantage of the savings plan for children is its flexibility, as it is not tied to a single financier or a specific monthly deposit. Whenever your child receives gifts of money – for a birthday, Christmas, confirmation or youth consecration – these can be included in the savings plan as special payments. You can also flexibly increase the savings contributions or limit them to the minimum amount if necessary. If your liquidity decreases, you can also suspend the savings. Of course, not every saver has the same investor mentality. This applies to your own savings plans as well as to a savings plan in favor of third parties. Grandparents may be more cautious when it comes to a savings plan for children and prefer to invest the money, for example, in a building society contract or a call money account, with call money accounts having a clear advantage over the savings account as a target account: If the money is needed, the beneficiary can use the entire amount in one sum feature. Advance interest will be charged on the excess amount. Parents who trade in stocks and trust in the financial markets tend to rely on investment funds with a broadly diversified risk due to the long term.
But, you should know that when investing in a call money account: Due to the long term, inflation has an impact on asset development. In short: Those who rely purely on overnight money risk a massive loss of returns.
How safe is your money with a child savings plan?
Wondering if your money is safe with a child savings plan? It depends on the form chosen. If you have opted for a savings plan in favor of a savings book, a call money account or a building society contract, your balance is subject to the so-called “deposit protection”, which amounts to at least 100,000 dollars per saver and bank.
But even if you have decided on an investment savings plan as a savings plan for children, your money is safe, because the customer money that is invested in fund shares is part of the fund company’s special assets. These special assets must be kept separate from the equity of the fund company and will not be included in the bankruptcy estate in the event of bankruptcy. The fund continues to exist regardless of the existence of the fund company and can be continued by another manager. There is, however, one risk factor: Funds and stocks are generally subject to price fluctuations.