Do you want to open a savings account for your baby? Here are the advantages and disadvantages of the different investments available.
Have you just experienced a happy event? You may receive gifts from friends and family by transfer or in cash for the birth of your child. Where to put this money? Overview of products available from birth.
1 – Livret A, classic but timeless
Where and how. As soon as you need a piggy bank, the Livret A option is essential. A savings of 10 euros is enough, in any bank, and even 1.50 euros at La Banque Postale.
Risk and return. The best-seller of savings in France pays 3%, net of all taxes until January 31, 2025. Capped at 22,950 euros in payments, the Livret A is a risk-free investment: l‘deposited savings are guaranteed. The authorized ceiling can be exceeded but only thanks to capitalized interest.
Strong point. The very classic booklet A has a practical aspect: it can easily serve as a fund for monetary gifts from grandparents, aunts and uncles, etc., analyzes Valrie Bentz, head of heritage studies at the UFF. Since savings are available at any time, your child will be able to take your pick from the age of 16then keep it (or transfer it to another bank) its majority.
Weakness. The current formula for calculating the Livret A rate is based on inflation but also on a monetary rate (Eonia). In other words, with inflation taking off again, the yield on the Livret A is not rising at the same pace. There is a better way to put a newborn’s savings to work over time.
Verdict: practical and non-binding, Livret A is a safe value but it cannot be considered the best long-term investment. To be favored as a pot of family gifts.
2 – The housing savings plan: a reduced return
Where and how. Offered by almost all banks, the PEL has long been a best-seller for children and newborns. A deposit of 225 euros is required to open, then you must commit to paying 540 euros per year, or 45 euros per month.
Risk and return. The remuneration rate displayed at opening is guaranteed for the entire life of the home savings plan. The problem: this guaranteed rate is now only 2% grossi.e. less than Livret A. And the interest on newly opened PELs is taxissheight of the flat tax (PFU) of 30%, which offers an annual net rate of 1.40%.
Strong point. Constrained savings: you force yourself to put 45 euros aside each month for your child.
Weakness. Reduced yield. Even if the PEL is increased by 2.25% or even 2.50% in 2024, it remains less remunerative than the Livret A. Furthermore, beyond the regular payment obligation, the PEL has a lifespan limit: 10 years maximum to deposit money, and 15 years maximum of holding. Opening a PEL when your child is born does not allow you to plan with this investment until he or she comes of age.
PEL: will the rate increase in 2024?
Verdict: It has become much less attractive with the decline in its output. While he benefited from an income tax exemption for 12 years, this is no longer the case today. Its only asset is the appearance regular savings but you can schedule payments in the same way on more flexible products (booklets, life insurance, etc.).
The end of the retirement savings plan
If until now it was possible to open a PER for your minor child, this will no longer be the case from January 2024. Furthermore, the payments on those already opened will also be impossible. It will therefore no longer be possible to benefit from the advantages of tax deductibility for legal representatives. To replace the PER for minor children, Bercy has created the Future Climate Savings Plan (PEAC), which will be capped like the Livret A, i.e. 22,950 euros. This product should see the light of day in the first half of 2024.
3 – Life insurance: a compromise between availability and long-term return
Where and how. All banks have life insurance accessible to children, but we must not forget traditional insurers, fintechs, brokers and online banks. The offer is plentiful.
Risk and return. Life insurance is a medium or long term investment with on the one hand a support with little exposure to risk, the euro fund, and on the other hand potentially more profitable long-term supports, in return for a risk of loss, the units of account (UC).
A flagship support for life insurance, the Euro fund returned an average of 1.90% in 2022 and the average return expected for 2023 is 2.50% (or even 4.5% for the most recent Euro funds). A return which can obviously be improved by the CUs: their performances follow the ups and downs of the financial markets (-11.2% in 2022 but +9.9% in 2021 according to France Assureurs).
Life insurance: up to 4.5% return expected for euro funds in 2023
Taxation? The flat tax (PFU) at worst, but most often earnings are only subject to social security contributions (17.20%). They are in portion exempt from income tax if you keep your contract for more than 8 years, the most likely eventuality is for a newborn. Indeed, for contracts of more than 8 years, the holder benefits from a annual tax deduction of 4600 euros for a single person in the event of redemption.
Strong point. Long-term return prospects, provided you diversify by mixing euro funds and units of account. Do you want to limit the risks? Contracts with pilot management allow you to delegate CPU management to an expert thanks to the pilot management while adapting risk-taking for long-term investment horizons, 18, 20 or 25 years in the case of a newborn.
Savings: should we always prefer the Livret to life insurance?
Weakness. Ask your banker or financial advisor to be precise on one aspect: is the contract taken out in the name of the child or your name with the child as beneficiary? The two practices coexist but the purpose is not the same.
In the first case, the savings paid belong to the child and he can dispose of them upon reaching the age of majority. In the other, you can change the beneficiary whenever you want. It is also possible to schedule the availability of savings at an age defined in advance (20 or 25 years for example) thanks to an additional pact. Two different objectives, which you must be aware of when subscribing.
Verdict: more suitable than a booklet if it is a question of preparing the financing of studies or to enable your child to launch into working life with a small nest egg. Life insurance can also prove useful in the event of a larger donation or inheritance, for example, adds Valrie Bentz.
Despite certain preconceived ideas, life insurance is a relatively unrestrictive investment: your child will be able to draw on his savings without delay when he reaches the age of majority. But don’t hesitate to compare contracts, to avoid excessive payment fees and to aim for a fund in euros whose remuneration is not too low.
Compare the best life insurance offers
4 – Bank books, an unfavorable option
Banks offer, in addition to the classic Livret A or life insurance, booklets accessible from birth. Zebulon, Scoopy, Tiwi, P’tit Mousse or Premier Pas passbooks: young children’s bank passbooks are very often offered before being able to move on to the youth passbook. These booklets are in fact accessible between 0 and 12 years old.
Return and risk. Their remuneration rate is defined by the bank and the interest is subject to the PFU of 30%, unlike the Livret A which is completely tax-free. The booklet Zbulon of LCLfor example, is currently earning 1.10% gross, which makes 0.77% after tax. It is capped at 2000 euros. Another example, at Crdit Coopratif, the booklet Scoopy is capped at 1600 euros with a 3% gross rate, which reduces its yield 2.10% net. The booklet Tiwi of Crédit Agricole is remunerated 4% gross (2.80% net).
Strong point. The bank book can be interesting in addition to the Livret A but you must compare them carefully before subscribing.
Weakness. Most of these booklets are ceilings 1600 euros of payments, which makes it necessary to wait before opening a Booklet for young people aged 12, also capped at 1600 euros. However, there are exceptions such as Booklet + Child by Fortuneo ceiling 10,000 euros but pays 2% before tax.
Verdict: Bank savings accounts are as flexible as Livret A but offer lower, or even very lower, returns after taxes. It’s about a savings tape before opening a youth booklet accessible to 12 year olds. As a reminder, the youth booklet is capped at 1600 euros. Its rate is at least equal to that of the Livret A (3% currently), which can reach 4% in certain banking establishments.
Which investment to choose?
the birth of your child, opening a Livret A is already an excellent option. Accessible, it will allow you to save your own time and add gifts from all members of the family, happy to spoil the last born.
If the Livret A is full, it is possible to turn to life insurance. A medium and long term placement to support your child in their life projects.
The best is to start with the Livret A as for a household’s cash flow, because it is a reserve to buy your first car for example or help with any other expensive expense. Once the ceiling is reached on the savings accounts or in the case where the child receives larger donations, life insurance is a very suitable product, concludes the head of heritage studies at the UFF.