Investing Child Benefits: How to Build a Small Fortune for Your Child
Every month, the government transfers a substantial amount to the bank accounts of German families: Since 2026, child benefit has been 259 euros per child per month. For many parents, this money is an important source of support to cover daily expenses such as clothing, school trips, or hobbies. But what if you were to use this amount—or even just a portion of it—strategically for your child’s future?
While the state pension seems uncertain and inflation is gradually eroding purchasing power, having a financial cushion for our children is more important than ever. If you don’t let child benefits get lost in the hustle and bustle of everyday life but instead invest them wisely, you’ll lay the foundation for a worry-free start to adulthood. Whether it’s for college, their first apartment, or even as a basis for retirement savings later on—time is your most powerful ally here.
This article gives you an overview of how to invest your child's allowance wisely, why the piggy bank in your child's room is a thing of the past, and how to get the most out of it for your child with an ETF savings plan.
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 wealth grow—our experts will take care of the rest
Why Investing Child Benefits Is the Best Decision for the Future
When it comes to saving for their children, many parents still think of the traditional savings book or a classic savings account. But the reality in 2026 is sobering: A savings book is not suitable for children as a long-term investment. The interest rates banks pay on these accounts are far too low to even keep up with inflation. Anyone who parks their money there will watch it lose value year after year. A piggy bank in the child’s room is actually the worst option for long-term wealth building.
Investing in stock markets offers significantly higher potential returns compared to traditional savings options such as checking accounts or certificates of deposit. While a checking account is flexible—since you can deposit or withdraw money at any time—the low interest rates there make it more suitable for short-term cash management. A fixed-term deposit account offers slightly higher interest rates, but it limits your flexibility and almost never beats the returns on securities in the long term.
The Power of Compound Interest: Your Child as a Time Millionaire
Your child’s biggest advantage is the long investment horizon. If you start right after birth, the money has 18 years to grow. Thanks to the power of compound interest, even small contributions can grow into a substantial sum over the years.
A look at the calculations:
Thanks to the power of compound interest, even 50 euros a month—assuming a 5% return—can grow to around 17,300 euros after 18 years. If you were to invest the entire child benefit of 259 euros, the principal would amount to nearly 90,000 euros by your child’s 18th birthday. That’s a financial cushion that completely changes the start of their life.
Junior Investment Account: The Legal Basis for Investing
If you decide to Building Wealth with ETFs If you decide to invest in stocks, you'll need a securities account. A children's account, also known as a junior account, is a special account held in the child's name. Parents or legal guardians open and manage the junior account on behalf of the child until the child reaches the age of majority.
Benefits of Opening a Brokerage Account in the Child's Name
The assets held in a Junior Depot legally belong to the child. This has a key advantage: A Junior Depot automatically takes full advantage of the child’s tax exemption. Since children often have no income of their own, they can receive investment income completely tax-free up to a certain limit.
Key Facts About the Junior Investment Account:
- Tax Benefits: Every child has a personal savings allowance of 1,000 euros per year. Income that exceeds this savings allowance is normally taxed at a rate of 25 percent as a withholding tax (plus the solidarity surcharge and church tax).
- NV Certificate: Parents can apply to the tax office for a non-taxable income certificate for their child. This allows children to receive up to approximately 13,000 euros per year in investment income tax-free.
- Costs: Most banks offer junior brokerage accounts at reduced fees or even free of charge to encourage young investors. It’s still worth comparing the fee structures of different providers to find a solution with favorable terms.
A junior brokerage account isn't just a place to keep money; it can also serve as a valuable educational tool for teaching children at an early age how to manage money and how the economy works.
ETF Savings Plan: The Ideal Way to Help the Next Generation Get Ahead
Which securities should you invest your child benefit in? Most experts say: ETFs. An exchange-traded fund (ETF) is an index fund that tracks a market—such as the MSCI World—on a one-to-one basis. A broadly diversified equity ETF is considered the ideal vehicle for long-term wealth accumulation.
Why an ETF savings plan is so efficient
Instead of betting on individual companies, your child invests in hundreds or thousands of companies at once with an ETF. This diversification significantly minimizes risk. If one company performs poorly, the losses are offset by the profits of other companies in the index.
An Overview of the Benefits of ETFs:
- Low costs: With fees often below 0.2% per year, ETFs are significantly less expensive than traditional actively managed stock funds, which often cost 1.5% or more.
- Patience pays off: Investing in global stock ETFs can offer an average return of about six percent per year over the long term.
- Flexibility: You can adjust a savings plan at any time. If money is tight, you can lower your contributions. If grandparents or godparents want to contribute, one-time payments are usually no problem.
It is advisable to plan for an investment horizon of at least ten years to offset short-term market volatility. Those who start investing at birth have plenty of time on their side.
Investing Money in Your Child's Name: Here's What You Need to Know
Although saving in a child's name offers many advantages, there are a few things parents and grandparents should be aware of.
- The child's property: Legally, the money belongs to the child. Although parents are responsible for managing it, they may not use the funds for their own purposes (e.g., a new car for the family). It must be invested in the child’s best interests.
- BAföG and Insurance: Having too many assets can have consequences later on. Savings exceeding 15,000 euros can reduce eligibility for Bafög. In addition, if a child’s own income is too high, it can jeopardize their eligibility for the non-contributory family health insurance plan.
- The 18th Birthday: That's the key point. On their 18th birthday, the child gains full control over the entire portfolio. They can then decide for themselves whether to use the money for college or to go on a trip around the world.
Alternative: Save in the parents' name?
Some parents therefore decide to set up the savings plan in their own name. That way, they retain full control. The downside: You forfeit the child’s tax allowances, and the assets are taxed in your own name. Furthermore, the child’s assets have no impact on eligibility for child benefits, regardless of whose name the account is in.
Strategy for Grandparents and Godparents: Investing Together
Grandparents or godparents often want to support their grandchildren as well. In this case, it’s better to save and invest small amounts regularly rather than wait until larger sums have accumulated. A joint ETF savings plan, into which various family members contribute, is an excellent option.
However, when making large monetary gifts, you should keep gift tax in mind. While the tax-free allowances for children (€400,000 from each parent) and grandchildren (€200,000) are high, early planning is advisable for very large asset transfers.
Invest4Kids: The Smart Solution for Monitoring and Returns
Are you looking for a way to take advantage of the returns from an ETF savings plan, but don’t want your child to suddenly have a huge sum of money at age 18 that they might not be ready to handle? Invest4Kids offers an interesting alternative to the traditional junior brokerage account.
What makes our concept unique is that we combine the benefits of ETFs with parental control. This means you can control when the funds are disbursed and ensure that the money is actually used for planned savings goals, such as education or college. In addition, you benefit from tax advantages that go beyond those of a standard brokerage account, since portfolio rebalancing is tax-free within our solution.
Why our solution stands out:
- Safety: Your deposits are protected by the same strict rules as at a bank (deposit insurance).
- ETF Selection: We rely on scientifically sound global portfolios rather than risky individual bets.
- Financial Literacy: We'll help you teach your child how to manage money—perhaps even by opening their first checking account for their allowance, alongside a long-term investment.
Conclusion: Use your child benefit wisely and get started today
Investing your child's allowance is one of the most effective decisions you can make for your child. Instead of letting the money sit idle in a savings account that pays no interest, you can harness the power of global companies to build a real financial cushion.
Whether you choose a Junior Investment Account, a traditional ETF savings plan, or the flexible solution from Invest4Kids, the most important factor is starting early. The earlier you start, the less of your own money you’ll need to invest to achieve impressive results.
Your Checklist for Getting Started:
- Set savings goals: What is the money intended to make possible in the future?
- Compare providers: Who offers the best terms for a children's brokerage account?
- Set up an ETF savings plan: Choose a broadly diversified index fund as your foundation.
- Be patient: Let the power of compound interest work for you over 18 years.
Would you like to know the most efficient way to invest your child’s child benefit? We’d be happy to advise you personally and show you how to best combine tax benefits with control.
We'll help you find the right investment for your child!
