How to Start Saving for Your Child
There are many ways to start saving for a child. You can do it with a bank account, a fixed-income fund or an equity fund. I first started saving for my daughter at Seligson, with a monthly savings plan in index funds. It was easy and took no effort.
Later, Nordnet launched its monthly savings program and the fee-free Super funds, and in December 2017 I finally switched. Well, the old investments stayed at Seligson, but new ones go to the fee-free option.
The choice of investment and its costs have a huge effect on the result. Over the long term, an equity index fund is a sound choice. This is also recommended by one of the world’s wealthiest investors, Warren Buffett.
Step-by-step instructions for starting to save for your child
Nordnet is an easy choice: low costs and an extremely reliable company. In Finland, you can visit an office only in Helsinki, but I have never felt the need to go, because everything can be done in Nordnet’s online service.
For an adult, opening a Nordnet account is really quick and easy, because you can do it with your online banking credentials. Unfortunately, for a child you have to fill in paperwork, which is rather tedious. Opening the account doesn’t cost anything, though, and there are no monthly fees. If you also use the fee-free Super funds, there are no costs at all. Just brilliant.
How to get started
- Open Nordnet.fi from this li nk or type it into your browser
- Click the ‘Become a customer’ link in the top bar
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On the new page, select the ‘Minor’ radio button
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Click the ‘Open an account for a minor’ button
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Fill in the portfolio application form for a minor
5.1 One thing to note when filling in the form: ‘You can convert your Finnish account number to the old format by removing the first two letters and numbers (FIXX) from the start of the IBAN.’
5.2 The industry field is a bit odd. I would suggest the default value ‘Wage-earner households’
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When the form is filled in, click ‘Continue’
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On the confirmation page
7.1 Save the PDFs
7.2 Tick the box
7.3 Note the ‘Required contract attachments’ section
7.4 You can choose: A) print the contract and mail it, or B) Nordnet mails the contract to your home to fill in
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You come to a page asking you to sign the contract and mail it
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The contract is signed (by both parents), with a power of attorney attached if needed
9.1 Also attach certified copies of the parents’ identity documents
9.2 Finally, mail the whole bundle to Nordnet
Edit 6 Feb 2018: At least in December 2017, Nordnet did not accept a PDF sent electronically. The papers had to be printed and mailed. Papers signed electronically with a PDF editor were accepted, but they still had to be printed and sent.
A tax-free cash gift
In Finland, one person may give another tax-free cash gifts worth a total of 4,999 euros over three years. So if you want to give cash gifts to your child or grandchild spread over time, you could work out that a suitable maximum is 4,999€ / 36 months, or 138.86€ a month, or rounded down a little, 135€ a month. If you want to give more, both parents can of course give the same amount.
A gift means that property is transferred to another person without compensation. Gift tax must be paid if the value of gifts received from the same donor within three years is 5,000 euros or more.
Deed of gift template
According to the Tax Administration’s current guidance, a gift tax return must be filed if gift tax is payable. So if you are giving a tax-free gift, you don’t need to file a gift tax return. Still, if you want to be able to show where the gifts came from should questions ever come up, it is worth keeping records. Writing a deed of gift is one way to keep them.
Besides its value as a record, a deed of gift is a nice way to show a child what a fund gift is about. I have illustrated the gift with the deed of gift template below, which I made some time ago. I once also gave Fiskars shares as a gift, and then took the children, aged 6–8, to Fiskars village, which offered a fun way to make concrete what kind of products Fiskars makes.
Deed of gift template example
If you want to use the template below, the easiest way is to download it from this Google Docs link as a document, then save and edit it.
This gift card entitles the holder to Nordnet Superrahasto Suomi units worth 50 €.
The estimated value of the investment after a 20-year investment period is 258 €.
Nordnet Superrahasto Suomi is a completely fee-free index fund in Finland. The fund tracks the OMXH25 index, that is, the 25 most traded shares on the Helsinki stock exchange, and reinvests dividends like accumulating units.
Below you can see a list of the companies in the fund. Examples are KONE, which makes elevators and escalators, and Wärtsilä, which makes ship engines.
How I save for my child at Nordnet in practice
I opened a Nordnet account for my child and linked it to my own account, so I can log in to Nordnet with my own credentials and see both my own and my child’s accounts.
With the quick-login feature I can switch to accounts or portfolios where I act as an authorised representative. Next, I automate the investing by starting monthly saving and setting up a recurring bank payment that falls due once a month before Nordnet’s monthly savings date.
Monthly saving
Once the account is open, it is easy to start monthly saving at Nordnet. Just go to Monthly savings under Trading.
Next, click Start monthly saving and then choose the funds. I use the fee-free Super funds, where the minimum subscription is 15 eur, and you can choose from three dates on which the investment is made. If you want to read more about what I invest in, see this other article of mine.
If the amount is small, for example 15 eur or 30 eur a month, I think it is good to diversify into just, say, the Finland and Sweden funds. With a larger amount available, I would also add ETF monthly saving and, for example, the iShares Core S&P 500 UCITS ETF (SXR8). The challenge is that one unit currently costs about 250€, so the monthly amount would have to be quite large, or you would have to collect several months’ worth before you can invest.
Note, though, that Nordnet Superrahasto Suomi aims for the return of the OMX Helsinki 25 index and holds large international companies such as Kone, Nokia and Wärtsilä, whose returns don’t depend directly on the situation in Finland. So even though it is diversified across only 25 shares listed in Helsinki, the investor still enjoys global diversification in the sense that the companies are largely global players.
The fund is an equity index fund investing in the Finnish market, and its objective is to replicate the composition of the OMX Helsinki 25 Index and thus also the return formed by the index.
Nordnet’s instructions are quite good, see below.
Monthly saving in funds means saving a set amount each month in one or more chosen funds. You can save from as little as 15 euros a month per fund. The monthly saving is taken by direct debit from your share and fund portfolio every month.
How to set up a monthly savings agreement:
You can choose one or more funds for your monthly savings agreement. A monthly savings agreement can be made for all the funds Nordnet offers in its service. The monthly minimum subscription is 15 euros per fund in most funds. In some individual funds the minimum may be higher.
Monthly saving into a fund is carried out once a month, on the 5th, 15th or 28th of each month as you choose, or on the following banking day if that day is not a banking day.
When you set up a monthly savings agreement, make sure your chosen portfolio has enough money to cover the upcoming fund subscriptions, otherwise the fund orders cannot be executed. The monthly savings amount is charged to the portfolio for which you made the agreement.
Recurring deposit
If you intend to transfer the required amount to Nordnet from another bank each month, see all Nordnet’s account numbers for recurring deposits and your personal reference number under “Make a manual deposit” on the Deposits page. When you transfer money to Nordnet with a reference payment, note that the transfer may take a couple of banking days.