“Economy test”: How to save a small fortune for your children

Investment despite the crisis
How to save a small fortune for your children

If you invest money for the child early, you can let time work for you

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Are you saving money for the offspring in these uncertain times? The experts from “Finanztest” explain how you can best invest even small amounts for children – and what you should keep your hands off.

The financial situation is not easy for many households. Exciting to see the next heating bill. Supermarket shopping costs more. Equity portfolios have lost value, loans are becoming more expensive. And should one also set money aside for the offspring in these times?

In the current issue of “Finanztest”, the experts at Stiftung Warentest explain how parents and grandparents can do this with simple means. Because if you want to invest money for the children in the long term, e.g. up to the age of 18, to give them financial cushioning on the way, the current economic situation even offers advantages.

Because the “financial test” strategy basically consists of only two building blocks that can also be combined: stocks for the return and safe time deposits. After the recent price drop, mutual funds are much cheaper today than they were about a year ago. And with time deposits, the interest rates are finally worth mentioning again after a longer break. For parents and grandparents, this means that at least now is not the wrong time to start investing for children – as long as you can save a few euros.

Equity ETF for long-term returns

For long-term investments of ten years and more, the “Finanztest” experts continue to recommend equity ETFs. These are exchange-traded index funds that simply doggedly follow an index that is as broad as possible, such as the MSCI World. Price fluctuations and costs are lower here than with individual shares, and you can start with small monthly amounts. A total loss, as with individual stocks, is impossible, but the return potential of an ETF savings plan is still good: in the past, they averaged a return of 8.5 percent a year. Meaning: If you put 50 euros into a world share ETF every month, you can save an average of 24,000 euros in 18 years, “Finanztest” calculates. In the best historical case, even 48,000 euros would have come out, in the worst case, however, only 10,000 euros and thus slightly less than the effort.

To save an ETF, you must have a deposit in a bank. You can either set this up on your own behalf, then you can still get the money yourself if needed. Or you can open custody directly in the child’s name. The latter has the advantage that the income does not have to be taxed up to certain limits. Many banks offer special custody accounts for children and young people with free account management. With the direct bank depositories DWS, Flatex and ING, the execution of the savings plan is also free, with other providers it costs a few euros.

Fixed deposit interest rates are increasing

However, there is still short-term price risk even with a world equity ETF. If you want the money when prices are in the basement, you have to live with a worse return. For savers who want to play it safe, “Finanztest” therefore recommends a time-limited deposit account as an alternative.

With a time deposit, you invest a certain amount for a fixed period and know in advance how much interest you will get for it. Thanks to the interest rate increases in recent months, this form of investment is paying off again. According to “Finanztest”, anyone who invests the money for their child for five years can currently receive up to 3 percent interest per year. While that is significantly less than current inflation, it is better than nothing. And should the European Central Bank raise interest rates further to combat inflation, fixed deposit rates are likely to rise further.

Stay away from these products

However, “Finanztest” advises against the classic savings book, today more a savings account or bank savings, because there is almost no interest. The economic testers also do not think much of combination offers that combine savings products with insurance against loss of working capacity or the like. These products are often complicated, inflexible and expensive.

Hands off is also the rule with offers such as the children’s gold savings plan from Aurimentum. Due to the high sales commissions and surcharges on the market price of gold, such offers are not recommended. The child’s golden future must be secured in other ways.

The complete article and a depot comparison from Stiftung Warentest is available for a fee at www.test.de

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