Building savings contract as an investment for children

It is not uncommon to conclude a home savings contract for your children, because it not only serves to secure a cheap home loan but also to build up assets. We will inform you about how a home savings contract works, what subsidies are available and to what extent a home savings contract is also suitable as an investment for children.

As the name suggests, home savings contracts are actually there to be able to finance the construction of a house later. A building savings sum is set, of which part is saved by the saver and the other part is allocated by the building society as a loan at low interest rates. But even if no house is planned, a home loan and savings contract can also be worthwhile for children.

How does a building loan contract for children work?

In the case of a home savings contract for children, a home savings sum is contractually stipulated , which is to be paid out at the end of the term. Depending on the building society and tariff, the minimum amount is between 3,000 and 10,000 euros. The minimum terms for a home savings contract for children are between one and seven years.

Among other things, the savings amount that has to be paid in a certain cycle, monthly, quarterly, half-yearly or once a year, depends on the building savings sum. As a guideline, the building societies specify a standard savings amount of around three to five per thousand (thousandths) of the building savings sum. With a savings sum of 10,000 euros, that would be 30 to 50 euros.

In the savings phase , a building savings account is accumulated with the savings amount to be paid in regularly, which earns interest at a fixed interest rate of around 0.5% to 3%. A payout is only possible when the building savings account has reached the contractually specified percentage (usually 50%) of the building savings sum. If this is the case, the home savings contract is “ready for allocation” and the home savings loan can either be accepted, rejected or postponed to a later date.

In the case of a home savings contract for children, home savings loans are rarely used and the home savings credit is paid out. However, many building societies give their customers the option of taking out a building society loan. If this is required, repayment takes place in a loan phase. The building society loan can be repaid either in full or in installments at a favorable interest rate.

What can children use a savings contract for?

If the credit from a home savings contract is ready for allocation, children do not have to use it to build a house. Most building societies do not place any restrictions on the intended use of the building society savings. For example, the money can go towards a car or your child’s education. The home savings loan, on the other hand, may only be used for construction, renovation and modernization work.

What subsidies can children receive with a home savings contract?

In the case of a home savings contract for children over the age of 16, the state offers a housing premium that is paid out after a blocking period of seven years in addition to the home savings sum. If the money is paid out before the end of the blocking period, the entitlement to the housing premium expires. Children who have not yet reached the age of 25 when they sign a home savings contract may also use the money for non-residential purposes. However, anyone who would like to receive a housing bonus must not exceed an income of 25,600 euros as an individual, which should not be too difficult with children. Your child will receive a maximum savings contribution of EUR 512 per year with a 8.8% subsidy, so that the maximum annual premium is EUR 45.06.

Young people who start training can also receive an employee savings bonus if their taxable income does not exceed EUR 17,900. The capital-forming benefits, i.e. payments that the employer makes in addition to the salary, are subsidized by the state up to an amount of 40 euros per month with the employee savings allowance. The home saver receives a 9% employee savings bonus on the capital-forming benefits, i.e. a maximum of 43 euros additional per year.

Does a home loan and savings contract make sense for children?

A home savings contract for children is particularly worthwhile for children over the age of 16. Then they can benefit from the housing premium and, in the case of training, from the employee savings allowance. With a home savings contract, children also have the advantage that they do not have to use the housing premium to build a house or anything similar.

If the home savings loan is not used, many home savings and loan banks also give bonus interest on the home savings credit, which can be paid out after the end of the contract period. The home savings account then includes the savings amounts paid in plus interest, bonus interest, housing premiums and any employee savings allowances. This can increase the return on savings to over 5%. Some building societies also offer building savings contracts for children and young people with additional savings benefits.

A building loan contract for children also offers interest security in uncertain times, as the interest rate is guaranteed when the contract is concluded. However, the interest rates are often lower than with other investments. So it is worth comparing the interest rates with those of alternative investments such as a money market account , because the interest rates here can be significantly higher without having to accept long maturities. When making the comparison, you should of course also include the home construction bonus and any bonus interest on the home savings contract.

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