At a Glance
- Traditional savings accounts like those placed in bank passbooks are still available but are no longer the preferred mode of investment given the deep interest rates and rising inflation affecting the value of the savings.
- While it might be tempting and is on-trend in many countries nowadays, do not fall into the pitfall of combining savings with insurance. Savings accounts usually offer very little interest rate but are safe; some insurance policies meanwhile are affected by market fluctuations particularly the ETFs.
- Savings accounts and some fixed-term deposits are currently not worthwhile given the very low interest rates. In general, you should invest money with more than 2% return otherwise you’ll lose money.
Investing for your child
Sure you’ll be overwhelmed by many options on which type of investment to get for your child. Some may offer the traditional fixed-rate savings and time deposits, while others may provide more hybrid options combining savings and insurance. There’s no one way or best way to save money for a child. You have to know what it is for. Be clear on the purpose of the savings and the timeline to find the best fit for your needs.
Here are top investment options you could consider:
Children’s Savings Account
Your child can start early with a kid’s savings account normally for children at least 10 years old (although some banks allow 7 year-olds). Banks usually don’t charge maintaining balance for this type of account and takes very less to open.Having their own savings accounts encourage the kids to be more aware of the money which can eventually develop into good saving habits as they grow up.
Money Market Account
Think of this as a savings account but just with a higher interest rate. The benefits are pretty much a combination of having both savings and checking accounts.
For large sums of money, parents might want to put it in various investment instruments to take advantage of the returns and avert value loses due to inflation. While investments often fluctuate with market rates, the gains – once you’ve made the right bet – are often big compared to the traditional savings. Time deposits used to be the most famous investment instrument in this category, but low interest rates make it unattractive at this time. Don’t bet on individual stocks, commodities and currencies in your investment. Security after all is more important than returns at the end of the day. If you need to, choose to invest in funds instead which are less volatile than equities.
As the name suggests, regular saving is an account that allows you to invest regularly. This is meant to promote saving and encourage people (like your little one) to save money.The more money you put in, the more interest you get. Although this rate is usually very minimal depending on the amount you save.
Deciding on the right investment for your child:
What kind of investment do you like?
Before investing, the first step is to ask yourself what the investment is for. We know it’s to secure your child’s future, but specifically what? What do you really want to invest in – education? A car? First rent? Health? It is important to know the purpose of saving so you can find the best product for you.
Some of the most-common investments nowadays are investments in ETFs which are technically “passive funds” that moves with the index and are fairly safe depending on the stock market. This is also less costly than maintaining “active funds since you pay lower fees when buying and selling it.
Choose the best provider
Once you’ve decided on the right product for you and your child’s needs, it is time to look for the best investment partner to help you realize your plans. Whether it is a bank or private brokers, the important thing is that you are investing your hard-earned money on a company that is trustworthy.
Research, research, research! You may compare the same product from different providers to see which one gives out the best returns but remember – if it’s too good to be true, it probably is. So beware and always choose to invest on the bigger, more reputable organizations. Read reviews about the companies too to learn from other’s experiences.
Open the investment
Now that you’ve chosen the type of investment and the partner you want to work with, it is time now to open that fund. Fill in the necessary form and submit the needed requirements. Wait for the firm’s instructions on how to proceed. Then before you know it, it’s done and your planned savings for your child will start ticking – and hopefully growing too.
Observe for some a few months how it goes. See if the investment works the way you want it to – and of course, customer experience is important. Give yourself some time to experience how your partner works with you: are they trustworthy? do they give you regular updates? do they make good on their promises?
Save on behalf of the child or in your own name?
One of the most vital question that parents ask at this point is whether or not they should save on behalf of their children or under the parent’s name.
Save in the name of the child
- Pro/s: 100% of the money you’ve invested will belong to your child and no one else. Not your relatives, not even the designated guardians can have access to it in whatever circumstance so it is very safe to secure that your hard-earned bucks goes to your child.
- Con/s: Different countries have different rules governing the taxation of such funds so it is important to get familiarize with the workings in your specific area; your child will also be able to access the fund only at age 18 – and as such, your child has full control on where to spend the money.If unsure whether your child can handle a huge some of money at 18, you my request for a payment plan done in monthly installments or other arrangements as allowed.
Save in your own name
- Pro/s: You have full control of the investment which you can set aside for your child. You may also be able to access it anywhere and anytime; there is an option to contract your child as a beneficiary of the bank.
- Con/s: You charge your own tax deduction if you name it to yourself so better be familiarize with the different rules in your country.
Some investment products nowadays also come with an insurance policy. Consumer protection recommends that “savings” and “insurance” should always be separate to avert the risk of losing all the investment for your child.