Saving for your child? But using the ‘Corekees way’, how does that work?
Studying, a big trip or a financial contribution for a first home. It doesn’t matter what, many parents save to give their child financial support from their 18th birthday. What is the best way to do this? And could Corekees play a part in this process? To find out, in this blog post we compare 3 ways of saving for your child: a savings account, investment account and Corekees’ tree-planting subscription’.
The types of accounts
In the past people often saved for the future on a so-called silver fleet account. Although some banks still call their account that, the Silver fleet was abolished in 1992 after the expiry of the Youth Savings Act. In this comparison we therefore take the ordinary savings account as our first savings option. The savings interest rate has fallen sharply in recent years; at some banks the interest rate is already almost negative. The interest rate used for this comparison is 0.20%. According to RTL news, this is the highest savings interest rate, which is money for the entire duration of the account.
Investing for your child
The current savings interest rate of savings accounts is extremely low; about 0.08% according to Business Insider. That is why more and more (grand)parents choose to invest for their child. The companies that offer this often have multiple packages, these are based on the risk level of the investment. According to Robeco, the return on these investment accounts is around 5%, depending on the spread between shares and bonds. There are often costs associated with both depositing and managing the money, usually around 0.5% of the amount deposited.
The Corekees ‘boom-savings’ subscription
With the Corekees “tree savings subscription” build up your savings by buying bonds for the production of Pongamias trees. The tree grows nuts, from which crude oil is pressed. This oil is then sold to oil companies to make biofuel. The entire process up to the sale of the oil emits less CO2 than the tree absorbs during its lifetime, which makes the tree ‘CO2 negative’ (that’s positive…). Bonds of the tree are valid for 20 years, with an average yield of 7.8% per year. Trees must grow for 3 to 4 years before they start to yield returns, from the 7th year at full strength. Yield is paid annually from the first harvest.
To compare the three ways of saving for your child, we look at what happens with a deposit of 100 euros per month, for a duration of 5 years. In the table you can see the differences after 5, 10, 18 and 25 years.
The numbers in these graphs are the total net interest or return for the different years. Because the deposit is returned to the account holder at the end of both the savings account and the investment. This is indicated under the heading ‘exit amount’. Corekees buys bonds (=loan form), because these have been bought, no ‘exit amount’ is received at the end of the bond.
What is particularly noticeable is that the ‘investing for your child’ yields the highest return during the first 10 years. Due to the low interest rate, the savings account is not attractive for long-term savings. The tree savings subscription yields the most returns over the entire term, because the trees still grow in the first 7 years. In these years they do not yet yield the full return. Not only is the yield the highest over the entire period, but you also make a positive contribution to the environment. This saves you and for a healthy financial future and planet.
Would you like to know more about the different savings packages of Corekees? Click here!