Investing for the future of your children

When you become a parent, carefully planning your tomorrow becomes a top priority. If the financial security of your family is uppermost in your thoughts, start investing for your children now. From savings accounts for children to regular investment plans, read our article to find out what tools you have at your disposal to give your loved ones more financial peace of mind.

Investing for your children: when to start

How many times have you been told that the birth of a child changes your life? And that is indeed the case, impossible to deny. Behind this cliché, however, lies a great truth: from the very first moment everything takes on a new meaning. Responsibilities increase, as do concerns about what you can concretely offer them.

It is not only about everyday expenses, education and recreation, but above all about future prospects. That is why it is never too early to start investing for your children: ideally, the earlier the better (or perhaps when you receive some unexpected money from an inheritance or insurance). In this way, you will be able to think long-term, reaping the benefits of the main financial solutions on the market, and form a sort of small (or hopefully large) piggy bank.

The most common solutions

As with any other investment, there is no 'one size fits all'. The financial products currently available in the Netherlands have different characteristics: just like a tailor-made suit, you have to choose the product that suits you best. And if you want to learn more about investing for your children, our financial education section can also offer you extra support in making an informed decision.

Not sure where to start? Let's see which are the most popular options in the Netherlands.

Savings accounts for children

The best known solution for those who want to invest for their children, probably because it has existed for decades, is the classic children's savings account to be registered directly in the child's name. The children's savings account works almost identically to 'regular' savings accounts for adults. You open a savings account (often at a bank) in the child's name. You then deposit money whenever it suits you. Or you deposit a starting amount and automatically transfer an amount every month. You receive (savings) interest on the money in the account. As a result, in the long term you profit from the compound interest effect. The various transactions carried out by parents (or grandparents) are tracked through account statements, just like regular savings accounts. Sometimes it is possible to receive paper bank statements so that you can show them to your child(ren) and teach them about money. You also often receive a welcome gift when you open a children's savings account. The interest on a children's savings account is usually slightly higher than that on a regular savings account from the same bank. The general rule applies here: the higher the interest rate, the less flexible you are with regard to interim withdrawals and deposits. It is therefore always good to check the exact terms and conditions of the account in advance.

Since such a children's savings account is not a checking account, the transactions allowed may be limited to deposits and withdrawals, and direct payments or card connections are often not possible. Certain restrictions may also apply to the deposits and withdrawals themselves. It is customary that the child only has access to the account when he or she turns 18. Parents must add the assets in the children's savings account to their own assets in box 3 in their income tax return. This also applies to any deposits made by grandparents. A savings account for children generally has a relatively low return compared to other investment products.

Investment accounts for children

Another alternative is investment account in your child's name. To a certain account, the following applies, similarly as with the savings account for children: the parent is the manager of the account (at least) until the child turns 18. In contrast to the children's savings account, this investment method is usually based on periodic deposits in a specific product (or multiple products); funds are often used for this. The assets are usually managed by the bank or broker where the investment plan has been set up.

The money in this account belongs directly to your (grand)child, so you make optimal use of the gift tax. You also do not have to pay inheritance tax on the money in the investment account. Please note: just as with the savings account for children, the assets in the investment account for your child count towards the assets of the parents until he/she reaches the age of 18.

ETFs investment plans

An innovative choice in this regard is using investment plans in ETFs (exchange-traded funds), which offer several advantages over traditional funds often offered by banks. ETFs are known for their transparency and low management costs. Unlike mutual funds, ETFs replicate market indices, reducing the performance risk associated with active management and providing broader diversification. Additionally, ETFs tend to be more liquid and flexible, allowing investors to respond quickly to changes in the market. Investing in ETFs through investment plans can therefore be an effective way to build a diversified, low-cost portfolio suitable for a long-term investment strategy for one's children.

Savings deposits

If you want a more stable approach to saving for your children's future, you could consider a savings deposit (‘spaardeposito’). This means that you lock in a specific amount for a predetermined period of time, with a predetermined interest rate during that time. Savings deposits provide stability and protect your investment against market fluctuations. They represent a safe choice for risk-averse investors who seek guaranteed returns. To use savings deposits for your children, you choose a term that meets their future needs. Whether it concerns education, an important life event, or long-term financial security. While they may be less flexible than some other investment options, savings deposits provide reliable and predetermined growth in your savings, contributing to your children's financial well-being.

Investment plans on behalf of parents

In addition to the possibilities listed above, it is also possible to make investments in one's own name, to be allocated to one's children according to one's financial goals. This option gives more freedom of action, because it is not tied to a minor. Moreover, one can focus on a varied portfolio to maximize the chances of increasing the invested capital and thus ensure a prosperous future. You then have the choice at any given time to donate this capital to your children. Take into account any gift and inheritance tax: always first check the exact amount of tax-free donations from parents for their children.

Are you thinking of investing for your children? Find out how Scalable Broker can help you make your savings pay off.