ETF Savings Plan for Grandchildren – How Grandparents Can Invest Wisely
Many grandparents, parents, and godparents care deeply about their grandchildren’s financial future. Whether it’s for education, a driver’s license, or starting a career—a financial cushion can make the transition to adulthood easier.
But which savings methods make sense, and how can grandparents ensure that their investments pay off in the long run? In this article, we explore various ways to start saving for grandchildren from birth. We explain why building wealth through ETF savings plans can be an attractive option.
We'll help you find the right investment for your child!
- €25,703 more per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video call from the comfort of your own home
- Sit back and watch your child’s wealth grow—our experts will take care of the rest
What options do grandparents have for saving for their grandchildren?
There are many ways to provide financially for your grandchildren. From traditional savings accounts to cash gifts deposited into checking or certificate of deposit accounts, all the way to investments in the capital market—each option has its own advantages and disadvantages. It is important to consider your individual goals and investment horizon in order to choose the right savings option.
Why do grandparents save for their grandchildren?
Grandparents often want to make a financial contribution to help their grandchildren get a head start in life. There are many reasons for this:
- Education and Studies: Financial assistance for school or college tuition.
- Driver's license and first car: Support for the mobility and independence of adult grandchildren.
- Your own apartment: Contribution toward your first apartment.
- General financial security: A cushion for unexpected expenses or desires.
Traditionally, the Children's Savings Account used. It offers security and is easy to manage, but interest rates are very low these days, so the return is barely enough to keep pace with inflation.
What are ETFs?
An ETF (Exchange-Traded Fund) is a fund traded on a stock exchange that tracks the performance of a specific index, such as the MSCI World, DAX, or S&P 500. ETFs combine a variety of securities, such as stocks, bonds, or commodities, into a single product. As a result, they offer broad diversification, which minimizes risk while increasing the potential for returns.
ETFs are considered particularly transparent because investors can see at any time which securities are included in the fund. They are also flexible and can be traded like stocks during market hours.
A major advantage of ETFs is their low costs. Because they are passively managed, they do not incur the high management fees associated with actively managed funds. This makes ETFs an attractive investment option for long-term savings goals, especially for grandparents who want to build wealth for their grandchildren. Through regular contributions, such as via a savings plan, investors also benefit from the cost-averaging effect: Price fluctuations are offset by buying more shares when prices are low and fewer shares when prices are high.
Low-risk with low returns – money market accounts and time deposits
Checking and savings accounts are considered safe and simple investment options. However, they are not very attractive in times of low interest rates, as the return is usually lower than the inflation rate. As a result, the money saved loses purchasing power over the long term.
- Call money: Flexible and quick access to your funds, but with variable interest rates that are usually very low. It is suitable for short-term savings, but is not a solution for long-term savings goals.
- Fixed-term deposit: It offers a fixed interest rate over an agreed term, which makes it easier to plan your investment. However, your capital is tied up during this period, and the return remains low.
Both savings options are ideal for grandparents who prioritize security, but they offer little potential for long-term growth.
Higher risk and higher returns – investing in the capital market
Investing in the capital market offers the opportunity to achieve higher returns than traditional savings options. However, such investments carry increased risk due to market and price fluctuations. To trade financial instruments such as ETFs, stocks, or mutual funds, you must open a children’s brokerage account. This allows you to manage the assets in the child’s name, but requires the consent of the legal guardians.
Here is an overview of the most common investment options:
- ETF Savings Plan: Regular investments in exchange-traded funds that track indices such as the MSCI World. This approach offers broad diversification, manageable costs, and a solid foundation for long-term wealth accumulation. However, there are market risks involved, which typically result in losses.
- Stocks: Direct investment in company shares with the potential for high returns. However, stocks carry a high level of risk, as their prices are sometimes subject to significant fluctuations.
- Active equity funds: Portfolios managed by fund managers that are designed to outperform the market. However, they are very expensive and offer no guarantee of better performance than ETFs.
- Real estate funds: Investing in real estate projects offers stable returns, but liquidity is limited due to the high investment required. In addition, maintenance costs arise and there is a risk of lost rent.
- Bonds: Fixed-income securities that pay regular interest. They are considered safe, but carry credit and interest rate risks.
- Robo-advisor: Automated asset management with broadly diversified portfolios. This investment approach offers a simple way to get started, but requires a high degree of trust in algorithms. Personalized advice is not provided.
- ETF Pension Plan: This investment vehicle combines the potential returns of ETFs with the benefits of insurance. It does not require a brokerage account and enables long-term wealth accumulation with tax advantages and guaranteed fixed costs. Internal portfolio rebalancing is not subject to taxation.
We'll help you find the right investment for your child!
What is the best way for grandparents to save for their grandchildren?
To save effectively for their grandchildren, grandparents should consider the following:
- Savings rate: The savings rate should be tailored to the grandchild’s individual goals and needs, as well as the grandparents’ financial circumstances. Regular monthly contributions are ideal for steadily building wealth. Larger one-time contributions can supplement the accumulated capital and help fulfill the grandchild’s bigger wishes.
- Parental consent: Parental consent is required to open a children’s investment account or bank account in the child’s name. Parents are responsible for ensuring that the funds are invested in the child’s best interests. Alternatively, grandparents can open an investment account in their own name and set aside funds specifically for their grandchild.
The Benefits of Long-Term ETF Savings Plans
Long-term savings plans have both advantages and disadvantages, which should be carefully weighed to make an informed decision.
Advantages:
- Compound interest effect: Regular contributions can lead to significant growth over time, as returns are continuously reinvested.
- Diversification: By investing in various markets, risks can be diversified and the potential for stable returns can be increased.
- Flexibility: The savings rate can be adjusted at any time to suit the grandchild's financial situation or needs.
Disadvantages:
- Capital tied up: The capital is tied up for the long term, which limits flexibility in the event of unforeseen expenses.
- Market risks: Fluctuations in exchange rates can affect investment performance, especially if funds are needed in the short term.
- Investment strategy: Long-term investments require regular review and adjustment in order to respond to market changes
A ETFs for Kids can be a valuable component of a long-term savings plan, as it ensures diversification of capital and offers the potential for high returns.
Are ETFs a good investment for grandchildren?
ETFs are an excellent investment for grandchildren. They combine low costs with broad diversification and attractive potential returns. They are particularly well-suited for long-term goals, such as ensuring financial security in adulthood. Thanks to their passive management and transparent structure, ETFs offer grandparents a simple, effective, and flexible way to save specifically for their grandchildren’s future.
How can you set up an ETF savings plan for your grandchildren?
To set up an ETF savings plan for your grandchildren, you first need to open a securities account at a branch of your local bank or savings bank, or with another online broker. This account is the foundation for investing in ETFs via online banking.
- Select a provider: Find a suitable bank that offers ETF savings plans. Look for low fees and a wide selection of ETFs.
- Select an ETF: Choose an ETF that aligns with your investment goals.
- Set your monthly savings amount and start date: Decide on the amount of your monthly contributions and when you want the savings plan to start.
- Open a brokerage account: If the account is in the child's name, you'll need consent from the child's legal guardian. Alternatively, you can open the account in your own name and set aside funds specifically for your grandchild.
Stock Portfolio vs. ETF Annuity – Which Is a Better Investment for Your Grandchildren?
A Securities account Without a doubt, it offers grandparents a flexible way to build long-term wealth for their grandchildren. It allows for investments in various asset classes, such as ETFs, stocks, and mutual funds, enabling broad diversification and the ability to tailor the strategy to individual needs. The Junior Account is particularly well-suited for families who want to introduce their children to the basics of the financial world at an early age.
The ETF Pension Plan In contrast, this product combines the potential returns of an ETF with the advantages of a traditional annuity. It is a tax-advantaged, predictable investment that offers a high degree of legal certainty. Since it does not require a separate brokerage account, it is easy to manage. It also provides long-term cost certainty and offers tax advantages, particularly at the time of payout. Both models have their merits and should be evaluated based on individual savings goals.
Costs at a Glance
The costs associated with a securities account and an ETF pension plan differ significantly. Here is a comparative example:
Sample calculation for a savings account (18-year term, €100 per month):
- Order fees: approx. €324
- Spread costs: approx. €150
- Advance payment: approx. €1,200
- Transaction and hidden costs: approx. €200
- Account maintenance fees: approx. €1,900
- Total cost: approx. €3,800
Sample calculation for an ETF pension plan (18-year term, €100 per month):
- Closing costs: approx. €1,800
- Administrative costs: approx. €1,400
- Cost of the investment: approx. €3,200
- Total cost: approx. €6,400
The costs associated with a securities account are lower in the initial stages, as they involve lower upfront and administrative fees. Over the long term, however—spanning ten years or more—the tax advantages and cost certainty of an ETF-based pension plan become clearly apparent.
Taxation
The tax framework differs significantly. For securities accounts, every sale of securities is subject to a 25% withholding tax, also known as capital gains tax. This tax also applies to all income, such as dividends or capital gains, and significantly reduces the net return. As a result, only €750 remains out of a €1,000 return.
In contrast, the ETF pension plan offers significant advantages: internal reallocations remain tax-free, and payouts are also tax-free, provided the child has no income of their own. These tax differences are particularly noticeable in long-term investments and can have a significant positive impact on returns.
Legal certainty, transparency, and cost control
A securities account offers a high degree of transparency regarding investment performance and associated costs. However, parents lose legal control over the capital as soon as the child reaches the age of majority. From that point on, the child can manage the assets independently, which does not always align with the long-term goals of the parents and grandparents.
In contrast, the ETF pension plan offers not only a high degree of legal certainty but also clear transparency regarding return trends. Parents retain full control over the capital and can decide for themselves when and how payouts are made. In addition, the plan ensures stable, contractually fixed costs over the long term, which makes planning easier. This combination of security, transparency, and flexibility makes it an attractive alternative.
What do our customers say?
- Maria, 67 years old: “With the ETF pension plan, I’ve set up a flexible and secure savings plan for my grandson. I can make regular contributions and know for sure that the money is well invested. What I especially like is that the parents retain control over the funds and can plan the payouts so that my grandson receives targeted support later on—whether it’s for his education, his driver’s license, or his first apartment.”
- Thomas, 72 years old: “The tax-free status and long-term predictability won me over. With a traditional investment account, I would have worried about the tax burden, especially when rebalancing my portfolio. With the ETF pension insurance, I don’t have to worry about any hidden surprises and can reach my savings goal without any detours. The stability and tax advantage give me the feeling that I’ve made the best decision for my grandson’s future.”
- Claudia, 65: “I appreciate the peace of mind that comes from knowing the funds for my grandson’s education are set aside. It was important to me that the money not be spent prematurely, but rather be available for the major, important stages of his life. The ETF pension plan offers exactly that peace of mind, along with the flexibility to adapt to changes. That gives me the satisfaction of knowing I’ve done everything right.”
Conclusion
An ETF savings plan is an excellent way to build long-term wealth for children or grandchildren. With low costs and attractive potential returns, it is particularly well-suited for grandparents who want to save regularly.
However, an ETF pension plan is generally the better choice, as it combines financial security with tax advantages and long-term planning. It allows you to adapt flexibly to changing life circumstances while also specifically securing your grandchildren’s future.
Over 5,200 parents trust Invest4Kids
