An ETF savings plan for a child uses 18 years of compounding and the child’s own tax allowance. How to open the account, who owns the money and what to watch with child benefit, student aid and health insurance.
In short
- €50 a month at 6 percent over 18 years: around €19,000, of which €8,200 gains; €150: €58,000.
- Account in the child’s name: own €1,000 investor allowance, basic allowance with a non-assessment certificate, but the money belongs to the child.
- Limits: above €15,000 of wealth costs family insurance and student aid; income above €470 a month.
- Alternative: account in the parents’ name with earmarking, more flexible but without the child’s tax advantage.
The calculation
€50 a month from birth, 6 percent return, 18 years: around €19,000 from €10,800 paid in. €100: €38,000. €150: €58,000. If the child leaves the money until 40 without further contributions, €19,000 become around €68,000. The 18 years of head start are the real present; no later savings plan catches them up.
Account in the child’s name
Both parents open a junior account with IDs and birth certificate, free at direct banks and neobrokers. Advantage: the child has its own investor allowance of €1,000 and, with a non-assessment certificate from the tax office, the basic allowance of €12,348. Capital income thus stays practically tax-free. Disadvantage: the money belongs to the child. Parents only manage it, may not use it for themselves, and at 18 the child disposes alone, including of the sports car.
Account in the parents’ name
A second account in your own name, mentally assigned to the child. Advantage: full control, handover when and how you want, no effect on the child’s student aid and health insurance. Disadvantage: income runs over your allowance, and on the later transfer the gift allowance of €400,000 per parent every ten years applies, which is practically never a problem.
The limits with a child’s account
Family health insurance: if the child has own income above €535 a month, for example from distributions, it drops out of the free family insurance. With an account under €200,000 that does not happen. Student aid (BAföG): the child’s own wealth above €15,000 is offset against the grant. Whoever saves €100 a month sits at €38,000 at 18 and loses the entitlement. Child benefit: independent of wealth. Tax: with accumulating ETFs the advance lump sum applies, tax-free with an exemption order for the child.
The ETF
The same as for adults: world ETF, accumulating, cheap. A child’s account needs no special fund, no insurance wrapper, no education insurance. Those products cost two percent a year and deliver a third less over 18 years.
The handover
At 18 the account belongs to the child. Whoever has talked about money until then, shown statements and explained the savings plan hands over to someone who knows what they have. Whoever explained nothing hands over a lottery win. Start at 12 with a joint look at the account, at 16 with a small savings contribution of the child’s own.
Frequently asked questions
Can I use money from the child’s account for the family?
No, only for the child itself, such as school or braces. Whoever takes it for the family holiday becomes vulnerable; the child can reclaim it later.
What about gift tax?
€400,000 per parent every ten years, grandparents €200,000. With savings plans of €100 a month that is no issue.
Junior account or savings book?
A savings book brings under one percent, a savings account two to three, an ETF account six to seven over the long term. With an 18-year horizon the ETF is the only sensible choice.
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