Those who are now adults still know it: interest on savings accounts. Many people had small piggy banks at one or other local bank and perhaps even brought their certificate money there. The parents also saved, and there were sometimes high interest rates – and the adults could then afford a driver’s license or a trip abroad just in time for their 18th birthday.
This was no longer possible during the low interest rate phase and will probably remain that way in the long term. Although the European Central Bank raised the key interest rate to 4.5 percent in September 2023, many banks are still not passing on the hefty interest rates to their customers. This also applies to children’s and young people’s savings accounts, which some savings banks still charge at one percent or less. Even large direct banks like ING only offer higher interest rates for juniors for a limited time.
Children’s and junior depots can be a good alternative. The advantages quickly become apparent: high potential returns, tax advantages and the possibility of extending the whole thing. Apparently more parents are recognizing this and are opening more and more children’s and young people’s accounts at financial institutions.
Florian Möller is group manager for the capital market for private customers at DZ Bank. He has observed that many young people have entered the capital market in recent years. To this end, his team has put together a concept in recent years and developed a free portfolio for investors under 30. Möller emphasizes that this is not an offer explicitly for children, but it can also be used by parents. “Savings plans are increasingly becoming the method of choice for many people,” says Möller.
The DZ man is describing a certain trend that has been emerging at banks for some time: where savings accounts used to be important, today ETF savings plans or investment funds are important. There are now many offers: ING offers its junior depot on an equal basis with the normal depot and Deutsche Bank also has a young depot on offer that is explicitly aimed at children, schoolchildren and students.
These offers are not always advertised prominently, but this varies greatly from provider to provider. Elmar Gaugenrieder, an expert at Deka, for example, emphasizes the prominent placement of the topic of “savings” on the website. According to him, saving for children and grandchildren is one of the top five goals chosen. He is an expert in wealth creation at the investment company Deka. “Saving for your children and grandchildren is one of the most emotionally important goals of all. For many people, this is even more important than, for example, saving for an even better car,” says Gaugenrieder.
The driver of this development is, on the one hand, the low interest rates on savings accounts or current and fixed-term deposit accounts. Investment funds offer greater potential for returns. On the other hand, the emergence of neobrokers in particular has made investing attractive for young people in recent years. It seems hipper and cooler to invest in stocks or ETFs. Many parents want to follow the trend and invest the money for their children rather than letting it collect dust in a savings account.
However, the children’s depots are not big drivers of sales; there are probably far too few of them. In addition, there is hardly any trading in the depots; there is usually only a savings plan running, which doesn’t result in too many fees from the banks. Rather, the aspect of customer loyalty plays a major role here. “This is the new generation. These are the customers of tomorrow,” says Florian Möller from DZ Bank. It is important to bind them early in their lives. Anyone who already has a deposit with a bank is unlikely to change – as long as the conditions suit him or her.
The good thing for parents is that children’s accounts often have favorable conditions; for example, they can usually be run free of charge. But the general conditions are not the same everywhere, which makes it difficult for parents to compare the offers. In the past, high interest rates and high security from banks were particularly important; when it comes to children’s and youth accounts, there is much more to consider and differentiate between.
Free portfolio management, for example, is a first point of comparison. DZ Bank offers this, but only up to the age of 30. At Deka, account management fees apply from the age of 18. With ING or the broker Flatex, portfolio management remains permanently free of charge. The Comdirect depot costs 1.95 euros per month for inactive customers after six months. But if you have an active savings plan or trade securities twice a quarter, you don’t pay any custody fees there either. The providers also differ in the fees for buying and selling securities and the costs for a savings plan.
There are also small differences when opening the children’s depot. In all cases, only the legal representatives, i.e. the parents, can do this. Grandparents and other relatives are usually not legal representatives of a child. You are therefore not allowed to open a securities account in your name. Most providers allow you to transfer money to the depot’s clearing account and thus help you save. The child’s birth certificate is required – the legal guardians must also sign. For some providers this can be done online, for others only on site.
What is the same for everyone: a child custody account can also be worthwhile for parents from a tax perspective. A separate savings allowance applies to the deposits. In Germany, private investors have to pay 25 percent withholding tax on capital gains, although there is a tax allowance of 1,000 euros per year and 2,000 euros for married couples per year. If parents save for their children in their own accounts, the capital gains are also attributed to them and reduce their tax allowance. However, children have their own allowance. If the deposit is in the child’s name, the proceeds also count as his or her income. This means you can even save twice as much.
This text first appeared on Finance Forward, the magazine for the new financial world, which is created in cooperation between Capital and OMR. Like stern, the business magazine “Capital” is part of RTL Deutschland.
