For many parents, providing financial security for their children is a top priority. A children's custody account, also known as a junior custody account, appears to be an attractive way of building up assets for the next generation at an early stage.
However, in addition to the obvious advantages, there are also some disadvantages that you should be aware of before deciding on this form of investment.
We'll help you find the right investment for your child!
What exactly is a children's custody account or junior custody account?
A child custody account is a securities account that is set up specifically for minors, ideally at birth. It enables parents or legal representatives to invest in various securities such as shares, funds or ETFs (exchange-traded funds) on behalf of the child. ETFs are exchange-traded funds that track an index such as the DAX or the MSCI World and offer a simple way to invest in a broad range of asset classes.
The aim is to build up a financial cushion for the child through long-term investments such as a securities savings plan, which will be available for training, studies, the first car or other important phases of life, for example.
Why the securities account for children is so popular
A Direkt-Depot-Junior offers the opportunity to build up a financial cushion for the next generation at an early stage. Regular payments or a one-off investment and the use of interest and the compound interest effect can build up a considerable capital stock over the years.
Children learn how to handle money and investments at an early age, which strengthens their financial literacy. In addition, a share portfolio for children offers the opportunity to build up assets early on and secure your children's future.
Where is a children's depot set up?
As a first step, the child's legal representative chooses a bank or broker that offers custody accounts for children. A broker is a financial services provider that acts as an intermediary between buyers and sellers of securities. It is worth comparing different providers in terms of fees, investment options and user-friendliness in order to find the right online banking partner.
It is important to note that grandparents are generally not legal representatives of a child and therefore cannot open a custody account. However, there are providers who accept a power of attorney.
Investment products for children's custody accounts
Investments in equity markets offer significantly higher potential returns compared to traditional forms of saving such as call money and fixed-term deposits. A well-thought-out investment strategy is crucial to minimize the risk.
A key component of this is diversification, ideally by investing in ETFs in order to broadly diversify the investment and hedge against risks. It is advisable to plan for an investment period of at least ten years in order to benefit from market fluctuations and achieve stable long-term returns.
However, a child custody account also has disadvantages
Despite the advantages mentioned, the potential disadvantages of a junior custody account should not be ignored before opening one with providers such as comdirect or Sparkasse. It is important to be aware of these aspects in order to make an informed decision.
Profits must be fully taxed in the event of realignment
In the event of reallocations within the junior custody account, for example when selling securities to realign the investment strategy, taxes are incurred on the gains made. This also applies to an ETF savings plan and reduces the return by a good quarter (withholding tax plus church tax).
Transaction costs and other fees reduce profits
Every transaction in a custody account for children incurs costs compared to a savings account for children or similar forms of investment and reduces the savings plan rate. These transaction fees can add up over the years and significantly reduce the gains made. In addition, custody account management fees and other administrative costs may be incurred, which further reduce the return.
Legal certainty with ETF pension insurance
Compared to junior custody accounts, ETF pension insurance policies often offer greater legal security. With children's custody accounts, legal uncertainties may arise with regard to the power of disposal and the use of the funds, especially when the child comes of age and gains unrestricted access to the assets.
The child receives the full right of determination at the age of 18
Upon reaching the age of majority, the child can freely dispose of the saved assets. This entails the risk that the money will be used for short-term consumer wishes instead of for the originally planned purposes such as a driving license, training or studies.
The advice counts - a portfolio is never better than its contents
Choosing the right investment products is a decisive factor for the long-term success of an investment for children. Professional and free advice, as offered by us for ETF pension insurance, helps to develop a customized and sustainable investment strategy. Our experts take into account individual savings goals, financial possibilities and personal risk tolerance.
In contrast, traditional children's custody accounts generally lack such advisory services. This makes it more difficult for parents to find the optimal combination of security, return and flexibility, which can affect the long-term success of the investment.
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December 02, 2024
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Our recommendation - ETF pension insurance combines the advantages of the capital market with the stability of insurance
ETF pension insurance combines the high potential returns of ETFs with the stability of traditional pension insurance. Your regular contributions flow into a selection of proven ETFs that offer long-term growth and security.
This combination makes it possible to build up flexible assets that can be individually adapted to your savings goals and financial needs. Another advantage is the tax benefits: During the savings phase, the income is usually tax-free, and you can also benefit from tax optimization when you retire.
Advantages of ETF pension insurance
Right of determination from 18
A unique approach to ETF pension insurance is that the investment is in the name of both parent and child. This ensures that control is not automatically transferred in full to the child on their 18th birthday.
Parents retain the decision-making power and can thus ensure that the capital saved is used exclusively for sensible purposes such as education, a driving license or other important milestones in the child's life. This structure not only offers more security, but also protects against ill-considered spending that could jeopardize long-term financial goals.
Free choice of funds and ETFs
With access to over 45,000 funds and ETFs, ETF pension insurance offers an impressive variety of investment options, enabling a tailor-made strategy for every family. Parents are assigned a personal advisor to analyze their individual wishes, savings goals and financial circumstances in detail.
On this basis, an optimal, long-term investment strategy is developed that combines stability and growth. Parents do not have to deal with complicated financial details, but can rely on the expertise of the advisor, who regularly reviews the funds and adjusts them if necessary to keep the investment on track.
Condition assurance
An ETF pension insurance policy offers long-term planning security, as once agreed conditions are guaranteed for the entire term. This stability is particularly valuable in a changing financial landscape in which legal reforms or new regulations can often lead to unexpected cost increases or tax disadvantages.
While traditional custody accounts with conventional banks are susceptible to such changes, ETF pension insurance protects parents from unforeseeable burdens. Even in the event of adjustments such as the abolition of certain fee models or changes to tax law, the terms of the insurance remain unaffected, ensuring long-term predictability and financial protection.
Tax benefits
By making clever use of tax allowances, ETF pension insurance opens up attractive opportunities to effectively reduce the tax burden. As the investment is in the name of the parents and child, both allowances - the saver's lump sum of EUR 1,000 and the basic allowance of EUR 11,604 (as of 2024) - can be combined. The prerequisite for this is to complete a free exemption order with the responsible financial institution. This can be done on site or by post or e-mail.
This means that a large proportion of the profits generated remain tax-free. In addition, ETF pension insurance enables tax-optimized growth in the long term: during the savings phase, the income often remains untaxed, and parents and children also benefit from tax advantages in retirement, for example through the half-income system. This makes asset accumulation sustainable and efficient.
Flexibility
ETF pension insurance offers exceptional flexibility that adapts to the family's individual life situation. Parents can increase, reduce or even pause their contributions at any time without risking contractual penalties or tax disadvantages.
Additional payments or withdrawals can also be made easily and flexibly, making it easier to cope with financial bottlenecks or unexpected expenses. This adaptability makes it possible to rethink the investment strategy at any time and adjust it to changing needs without incurring additional costs or tax burdens.
FAQ - Frequently asked questions
This topic is of great interest to most of our customers. We therefore answer frequently asked questions here.
What are the advantages of a child account?
A child account makes it possible to provide financial education at an early age and teach the child how to handle money. It offers a secure way to manage gifts of money and save for future expenses. Your child also learns to take responsibility for their own finances.
How much money should you invest each month for a child?
The amount you save each month depends on your individual financial means and goals. Experts recommend regularly saving a fixed amount in order to benefit from the compound interest effect. Even small amounts, such as 50 to 100 euros per month, can grow into considerable assets over the years.
What is the best option for investing in a child?
Compared to traditional forms of saving such as savings books, fund savings plans, fixed-term deposit accounts, children's custody accounts and ETF savings plans, ETF pension insurance offers numerous advantages.
It combines the potential returns of the capital market with the tax advantages and security of an insurance policy. It also allows flexibility in terms of payments and adjustments to the investment strategy, making it an attractive option for securing your offspring's financial future.
What our customers say
Here are some experiences of parents who have opted for ETF pension insurance:
- Sophie M. from Hamburg: "Thanks to ETF pension insurance, I feel safe in the knowledge that my daughter's money will be put to good use, even after her 18th birthday."
- Lukas R. from Munich: "The flexibility and tax advantages convinced me. I can adjust the savings rates to my financial situation and know that my son is well protected."
- Nina K. from Berlin: "The professional advice helped me to find the optimal investment strategy for my children. I didn't have to deal with the details and can rely on the expertise."
We'll help you find the right investment for your child!
- An additional $25,703 per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video conference from the comfort of your own home.
- Sit back and watch your child's assets grow – our experts will take care of the rest.
Conclusion - investing in the future of the next generation with strong ETFs
Your child's financial security requires careful planning and choosing the right type of investment to support their start into adulthood. While a child custody account offers some advantages, the importance of tax burdens and lack of control from the age of 18 should not be underestimated.
ETF pension insurance combines the potential returns of the capital market with the stability of insurance and also offers all the advantages of tax savings, flexibility and parental control over the investment. Thanks to professional advice and individual customization options, it is an excellent option for optimally shaping your child's financial future.
Get a free consultation now via our website or app and lay the foundations for a stable financial basis for your offspring with the investment.
"Know what counts - plan your family's financial future now."
