In Finland, you can open both bank and investment accounts for your children, and set them up on the road to financial literacy. Not only can you start introducing them to personal finance from any age, but you can also start planning for their future by saving & investing on their account.
To open a bank account, you just need to look at what your favorite bank offers. Generally speaking, bank accounts for children are free of any fees. Please note that these policies might change once your child reaches a certain age (e.g. 18).
Why you should open a bank and investment accounts for your child
Opening a bank account is the perfect way to start teaching your child about personal finance; how to save and manage their money, and even how to spend it. It can also be a handy way for them to get gifts from your friends or relatives, directly to their own account. More importantly for when they are still too young, a bank account is a good gateway to start investing, either through the same bank or as an intermediary step before transferring it to another investment broker.
As pointed out in a recent blog post from Nordnet in May (in Finnish), the most critical factor to make the most out of your money towards your child, is time. A summary created with ChatGPT:
The blog post from Nordnet emphasizes the significance of saving for children early on. It details the benefits of compound interest, illustrating how a one-time investment can grow exponentially over time. For example, investing 4,328 euros with a 7% annual return can amass to nearly 500,000 euros by the time the child retires. The article also advises minimizing investment costs by choosing cost-effective index funds. The core message is to adopt a long-term, disciplined saving strategy to secure the child’s financial future.
In short, the earlier you start, the most impact your money contributions will have over your child’s future. As an example, the S&P 500, an index that tracks the 500 largest companies listed on stock exchanges in the USA, has had an annualized (average) return of 10.36% since its inception in 1957 until the end of April 2024. [Source]
Using my favorite investment calculator, you’ll see that investing an initial amount of 9998 euros (4999 euros from each parent) to your child’s account, will turn into around 1.173 million euros after 50 years.
To achieve similar results with a monthly contribution and zero starting amount instead, you’ll need to deposit 80.41 euros per month.
Notice how in the first example, the total amount of money you need to invest is only 9998 euros, which render 1.163 million euros in interest over 50 years. On the second example depositing 80.41 euros per month over 50 years, you’ll have contributed a total of 48.2k euros and getting 1.125 million euros in interest. This happens because compound interest works its magic fully on your favor with the bigger initial amount, while its benefits are spread out throughout the investment period with the small monthly deposit.
Types of accounts available
The most common investment accounts for children, according to this blog post from Nordnet are:
Value share account (AOT – Arvo-osuustili) – This is the traditional investing account, and you’ll likely want to start opening this one at first. That’s because Nordnet’s index funds are a good purchase that can’t be done with an OST account. They are passively managed funds that follow an index, have no commission fees (one-off entry charge), and have a low annual running costs (known as an expense ratio). These are shown as a percentage of your investment that is charged automatically by the broker. With Nordnet’s index funds, you’ll find these to be from 0%, with the Finland, Norge, and Swedish Indexes, up to 0.49% with the Technology or the World 125 Indexes.
Share/Stock savings account (OST – Osakesäästötili) – This is a special kind of account, where you can deposit only up to 100k euros to buy exclusively stocks, and the benefit is that you don’t need to pay taxes on price appreciation of your stocks until you sell them. This account can be a great option to buy growth stocks.
Investment Insurance (SV – Sijoitusvakuutus) – or Life Savings Insurance is also available but it won’t be the focus of this post.
How does it work?
Managing your child’s accounts as a legal guardian
Generally speaking, all or most of these banks and investment firms will require both parents or legal guardians to agree to open the account for a child. Requirements vary, but as an example this is what Nordea requires to open an account for a child:
- Child’s name, personal identity number, and a passport or identity card.
- One guardian needs to be a Nordea customer and have Nordea access codes, while the other guardian needs any kind of access codes for identification.
- Both guardians need a valid ID with a photo issued in Finland, and a Finnish phone number.
Taxes
You’ll need to consider taxes, more specifically the gift tax, which needs to be accounted for when gifting your child 5,000 or more euros in the course of three years.
“There is no gift tax when gifting no more than 138 euros per month or 4,999 euros every three years. When you give the gift to the child’s account, there is no need to file a gift tax return form.” – OP
It starts counting from the date you give a gift for the first time, and the count is reset on the same date three years later. The gift tax limits are per person, so e.g. each parent could gift 4,999 euros to their child every three years.
“If the date when a new gift is made is the same calendar date, 3 years later, as the date of the earlier gift, the two gifts are not put together – this means that if a gift was given 15 July 2021, for example, and on 15 July 2024, there is a new gift, the first gift’s value is not added to the second gift’s value.” – Vero Finland
If you’ll exceed this tax-free limit, you can check Vero’s gift tax calculator to find out how much you’ll need to pay.
Choosing the right bank and investment broker
A list of banks in Finland that offer accounts for children
Nordea
A favorite for foreigners in Finland because they offer the most comprehensive service in English, which covers their website, mobile applications, and their customer service. Their fees (for adults) are on the higher end of the spectrum.
Debit card available from 6 years old and onwards.
Danske Bank
They also have a website in English, though they seem to have less content compared to their Finnish version.
https://danskebank.fi/en/for-you/products/childrens-services
Their MunRahat (PocketMoney) allows children aged 8-14 to get their own debit card.
OP
They added content in English not long ago. Their fees are typically considered to be lower than the average.
https://www.op.fi/private-customers/daily-banking/accounts/current-account-for-a-child
Debit card available for children aged 7-14.
S Pankki
While they have no English support, they have the cheapest service for adult accounts, as they only require a one-time initial fee of 100 euros, which you will also get back as a gift card to use in their stores.
https://www.s-pankki.fi/fi/elamantilanteet/lapsi-ja-nuori-s-pankin-asiakkaana
Debit card available from 7 years old and onwards.
Investment brokers in Finland
A favorite in Finland is Nordnet, because they take care of conveying your investment profits and losses to Vero, Finland’s tax authority.
They also have specific instructions to open a savings account for a child here:
https://www.nordnet.fi/fi/palvelut/tilit/lapselle-saastaminen
While their mobile application includes an option for English, their website is terribly lagging behind, offering only Finnish and Swedish. The worst part is that the initial contract isn’t available in English either, so here’s a ChatGPT translated version of them:
- PDF1 (coming soon)
- PDF2 (coming soon)
Please note that I cannot take responsibility for the accuracy of these translations, and if in doubt, you should contact Nordnet or a Financial Advisor.
Conclusion
Opening a bank and investing accounts for your child will undoubtedly set them on the path to an easier future, and it doesn’t need to be complicated. Creating a plan that aligns to your budget and your expectations can take an afternoon of joint planning, and you can easily set an automatic monthly saving so all of this is done without further effort.