Whether a driving licence, studies or the start of their own life – at some point your child will need financial backing. The most important factor is not the amount saved but time. A simple calculation shows why.
Compound interest works for you
Compound interest means the return from year one earns a return itself in year two – like a snowball growing as it rolls. Over 18 years that makes a big difference. Purely arithmetically, with no assumption about any product:
| Assumed annual return | A single amount becomes after 18 years | Monthly saving: that much more than paid in |
|---|---|---|
| 0 % | 1.0 times | 0 % |
| 2 % | 1.43 times | about 20 % more |
| 4 % | 2.03 times | about 46 % more |
| 6 % | 2.85 times | about 79 % more |
This is mathematics, not a forecast: nobody knows the actual return in advance, and it can be negative in individual years. The table only shows the principle: the longer the money works, the larger the share that time contributes. Start ten years late and you have eight years of compounding instead of eighteen.
Flexible instead of rigid
What to look at in any children’s savings plan, regardless of product:
- Flexibility: can contributions be adjusted, paused or increased without penalty?
- Costs: what percentage goes to fees each year? Over 18 years a percentage point of cost works as strongly as a percentage point of return – in the other direction.
- Access: can you reach the money in an emergency, and on what terms?
- Ownership: a contract in the child’s name belongs to the child at 18.
Whether and which form of investment suits your child is something to clarify with an adviser licensed for that. As an insurance broker I may explain how things work, but not give investment recommendations (§ 34f GewO).
New: the Frühstartrente (early-start pension)
The state wants to save for children itself. The Frühstartrente provides €10 per month for every child resident in Germany from the 6th to the 18th birthday – €1,440 in total – starting in 2027 with the birth years 2020 and 2021, with each new cohort of six-year-olds added annually. The money goes into a retirement savings account; parents and grandparents may add up to €6,840 per year unsubsidised. Payout is generally only at retirement age.
Status as of October 2026: the Bundestag passed the law on 16 October 2026; the Bundesrat has not yet decided, and details may still change. There is no need for parents to act now.
Bring the grandparents on board
Instead of a fifth toy, grandparents can pay into the child’s future. A joint plan bundles these contributions sensibly; gifts within the family are tax-free up to high allowances.
How to proceed
- Define purpose and date – that determines how much fluctuation you can bear.
- Choose an amount you can sustain.
- Compare costs and flexibility using the four questions above.
- Decide on concrete investments with a licensed adviser.
- Keep an eye on the Frühstartrente once the Bundesrat has approved it.
General information, not legal, tax or investment advice. Sources: German Bundestag (resolution 16 Oct 2026), German Pension Insurance (notice 19 Oct 2026), consumer advice centres (Frühstartrente, 09/2026), § 34f GewO; compound-interest table: own calculation – as of October 2026. The best time to start was the birth – the second best is today. Get in touch.
