How should I invest my child's savings?

Saving money for children and grandchildren makes sense

Education insurance, child policy, child provision

If you expect this insurance to cover your child's education, then you are wrong. Because unlike your house or your household effects, you cannot insure your training against risks. The insurance mentioned here is a form of capital-forming life insurance with a freely negotiable expiry benefit. Policyholder and contributor is usually a parent or grandparent. The service is due at the end of the contract. In most cases, this is based on the beginning of vocational training or studies. If the parent or grandparent dies before all contributions have been paid, the full benefit will still be due.

In essence, there are several benefits: protection against the financial consequences of the death of the parents or grandparents, and an investment for the child. For many products, additional risks such as accident or disability are insured to a certain extent. Each insurance service costs extra.

We do not recommend combining different services in this way. If you want to cover the risk of death or accident, then you can. Think about what service you need and inquire about your own insurance for this purpose. The insurance coverage for these products is not a perfect fit; it often does not cover possible risks as required. In addition, a price-performance comparison for the individual components is not possible and the product is not flexible. For example, it is not so easy to have the credit available before the end of the contract or to suspend saving for a long time. And if this does work, then it is often associated with financial losses. To top it all off, high acquisition and administration costs also consume the return on these contracts. That is why they are so far ahead on the consultants' shelves.

Instead of taking out insurance, you can, in particular, take out term life insurance against the death of your parents. The death benefit should not be based on training costs, but on the parents' need for security.

Further risks that threaten your standard of living can be insured individually as required with separate contracts:

  • You can find out here in an overview which insurances can be considered for different life situations.
  • If your offspring leaves school, you can read here which types of insurance could be important at precisely that point.
Pension insurance, generation policies

When it comes to old-age provision, brokers like to sell long-term pension and life insurance policies or so-called generational policies. The marketing departments of the insurers have come up with different names for these products. There is a simple reason why these products are popularly sold: The commission is calculated from the sum of the payments made over the agreed term. The longer the term, the higher the commission for the agent and the less money is actually invested, especially in the first few years of savings. Retirement provision is primarily wealth accumulation, and there are other products such as ETF savings plans and bank savings plans (see below) that are much cheaper to get.

In addition: Should your offspring in adulthood be able to decide for themselves how they want to invest their money, with what risks and income opportunities? Or should the assets be available for real estate or study abroad? Private pension insurance is definitely not the first choice.

New home loan and savings contracts are currently not a profitable investment. The credit interest is only slightly above zero percent and if you subtract all costs from the interest, this no longer pays off as a savings contract. Home loan and savings contracts are often sold because the brokers receive a commission, the so-called acquisition fee, for them. This is usually one percent of the home loan and savings sum, and there are also annual fees.

Unfortunately, the argument that your offspring might want to build one day and a building society loan agreement offers a cheap loan is no longer an option: the building societies have consistently terminated contracts in recent years as soon as they could. If the contract were ready for allocation, i.e. if it had been saved to the extent that the loan phase could begin, then you can expect to be terminated soon. Leave it and call up the loan at some point later, those days are over. You can read more about building society savings in our more detailed article.

Due to the recent price increases in the gold price, gold accounts or gold savings plans are increasingly being offered. However, the gold price fluctuated violently in the past, even more than the stock markets! In the last 20 years the price has fluctuated between around 300 and 1400 euros per troy ounce. Gold is anything but a safe investment. But it is also not generally unsuitable as an investment. For larger amounts, adding gold to an investment mix - for example, consisting of interest-bearing securities and equity funds - can reduce the overall risk of suffering major losses when investing. However, gold pays neither interest nor dividends and its long-term performance over decades after deducting the inflation rate was only higher in a few periods than other financial investments. We therefore advise against investing significantly more than 10 percent of your assets in gold.

If you are toying with the idea of ​​giving your offspring gold, we advise against gold accounts or gold savings plans. Instead, just give a gold coin as a gift. They are usually made of fine gold (999 gold). They are often published annually by different countries with different motifs. Be careful with collector coins, here you pay far more than the coin is worth in gold. There are coins that weigh a whole ounce (31.1 grams), but there are also coins that are lighter in weight. The smaller the weight, the worse the price. If you want to get as much gold for your money as possible, it is better to buy a few larger coins instead of many smaller ones. Find out in advance on the Internet about the gold price in euros, then you can better assess the offer. You can buy gold coins from banks and precious metal dealers. Be careful if you are supposed to order and pay for gold online before the gold has been delivered to you.

You can find more information on investing in gold here.

Fixed-term deposit plus mutual funds

Some financial institutions offer higher interest rates for a limited period as part of promotional weeks if you also invest money in mutual funds. But be careful: you basically pay the higher interest out of your own pocket because you have to pay a subscription fee to buy the investment fund. This is the commission that the bank receives from the fund company. In addition, the bank will continue to receive commissions in the future from the amount you have invested in the mutual fund. This is the sales follow-up commission, also known legally as "donation". The extra interest is usually over after three months, while the extra costs in the fund continue to have an impact for a long time, at the expense of your income.