Practicalities, awkwardness or simple preference: there are many reasons why many Swiss gift their children, grandchildren or god children money on special occasions. Seizing on the opportunity to onboard new customers, many Swiss banks offer gift savings accounts for children. These accounts are opened and managed by adults, but the money held in them belongs to children.
Gift accounts to save for the future
By opening a gift savings account, you ensure that your child, niece or nephew, grandchild or god child will receive the sum of all gifts and accumulated compound interest when they are old enough to make good use of the money.
For example, assets held in a gift savings account can be used to finance a child’s education. Although interest rates are currently very low, they should recover eventually over the long term.
In the event that the bank holding the child’s assets goes bankrupt, up to 100,000 francs of the assets are insured by the Swiss bank deposits guarantee.
As soon as the child reaches the pre-defined age, control over the account is officially transferred to them. At PostFinance, the transfer occurs automatically as soon as the child reaches the age of 18. Other banks let you choose the age at which you want the transfer to occur.
Many banks provide special gift certificates which you can deliver to the child along with control of their account. Until the point at which the pre-defined age is reached, only authorized adults can access the account (to make regular deposits, for example). The child who owns the assets is not permitted to withdraw any money from the account.
Withdrawal regulations vary between banks
Rules governing the withdrawal of assets from gift accounts by adult account managers vary between banks. Some banks require that you provide a founded reason for the early withdrawal of assets. You may even be expected to provide receipts showing how money was spent. Some banks do not allow any premature withdrawals at all unless you can prove that spending the money is in the child’s best interests.
Legislation governing gift savings accounts in Switzerland is somewhat vague and is interpreted differently by each bank. The basic rule is: if an account is opened in a child’s name, the assets held in that account belong to the child.
Compare savings account interest rates
Gift savings accounts are managed like other savings accounts. No fees are levied for account administration. Interest rates generally match those of youth savings accounts.
As with youth savings accounts, there are major differences in the interest rates of gift savings accounts from different banks. Performing a savings account comparison is recommended.
Investment accounts for children
Another account type for children which is offered by Swiss banks is the so-called flexible investment fund savings account.
A flexible fund-based account gives the account holder a share of ownership in an investment fund. The fund is typically invested in securities like shares and bonds. Contrary to fixed fund savings plans, holders of investment fund savings accounts are not required to make deposits in regular installments. You are free to deposit money into your child’s account as frequently or as infrequently as you choose.
The minimum amount required for the opening of investment fund savings accounts for children varies between banks. Some accounts require an initial deposit as low as 100 francs.
Some investment fund savings accounts come with special discounts for children. Still, the fees and charges attached to investment fund savings accounts are normally fairly high. In addition to a one-time issuing fee which (depending on the investment fund) is normally equal to 1 or 2 percent of invested assets, you may also pay custodial fees. The investment fund fees (TER) come on top, and are deducted directly from your child’s equity in a fund.
Financial markets are vulnerable to major fluctuations, making investment fund savings accounts more risky than regular savings accounts. However, investment accounts can potentially deliver higher returns if things go well.
The rule of thumb: Only open an investment account for children if you expect to leave the money untouched for a long period of time. 10 years is a good average.
A moneyland.ch report