A child savings can be a great help for the day your child, grandchild or great-grandchild need to take a driver’s license, move home or start a new study. You can read more about child savings here and about frequently asked questions related to just saving for a child.
Only one child savings per child
Parents, grandparents or great-grandparents can set up a child savings plan. However, a child must have a maximum of one child savings. In short, this means that only one child savings can be created and only in one bank.
Child Savings Amount
A maximum of USD 3,000 per year must be paid into a child savings account. In addition, it is worth noting that the maximum amount for a child savings is USD 36,000 throughout the savings period. It is up to the payer how the money is to be transferred. One option is also to set up a permanent transfer to the child savings account.
The time periods for child savings
The savings can be created right from the birth of the child until the end of the year when the child reaches the age of 14. When setting up the account, a binding period is agreed.
The payment of the child savings depends on when the account has been created. It is a requirement that the account is tied for at least seven years. The period can be extended later. The latest payment for child savings must be at the end of the year when the child turns 21. However, many people choose that the child can have his or her child savings paid out at the age of 18 – for example in connection with the child having to finance his driver’s license.
Deductions and interest
There is no tax deduction for the payments you make on a child savings plan. Interest on the amount in a child savings account is tax-free, as long as the child’s annual income does not exceed USD 33,000. However, there is a big difference between the various banks when it comes to interest on a child savings account.
It is therefore a good idea to research the market before you commit yourself to a bank, and it is also a good idea to keep up to date on interest rates as you are always free to change to a new bank with any better interest in a child savings account.
To obtain the most interest on child savings, it can be advantageous to deposit the maximum amount of USD 3,000 each year in the years just after the creation of the child savings account.
It is also an option to place the child savings in a pool scheme where the money is invested in a mix of mutual funds, equities and bonds that the bank’s advisors choose.
Many banks offer pool schemes specifically for child savings where the risk is not as high as in other pools. However, you can also usually choose between several different risk profiles. Here, again, it is about examining the different conditions before you make a choice.
Not all banks allow you to exchange your savings into shares, but some banks do. However, few people choose this solution. Each time you trade shares, it costs a bit in trading costs, which is deducted from the final accounts. On the other hand, there is the possibility of a higher return than with ordinary savings.