How to save money for a child: a deposit, government bonds or an account in their name

The main decision: whose name the account is in

Before choosing between a deposit and bonds, decide who will legally own the money. This determines whether you can manage it flexibly and whether the child gets exactly the amount you saved for them at 18.

Why money in a child's account is so hard to take out

Money placed in an account in the child's name becomes their property. Parents manage a child's property in the child's interests but cannot reduce the child's property rights. So funds can be withdrawn or transferred from a child's account before they turn 18 only with permission from the guardianship authority. To get it, parents submit an application, the birth certificate, a bank statement and a document explaining what the money will be used for. Review takes up to 30 days, and permission can be refused if the operation reduces the child's property or harms their interests.

From 14 the rules are even stricter for the child. A teenager can freely manage only their own earnings, stipend and other own income. Money that other people put into their account can be spent only with the consent of the parents and the guardianship authority (Article 32 of the Civil Code). The child gets full control of this money at 18.

For some families this is a plus: the money is guaranteed to wait for the child and will not be spent on a renovation or a car. For others it is a minus: if the money is needed for the child's treatment or education, you will have to collect documents and wait for permission.

How much to save and what you get in 18 years

Take UAH 1,000 a month from birth to 18, which is 216 contributions. Interest is capitalised monthly at today's rates: the average for long-term hryvnia deposits of 14.8% a year minus 23% tax, and military OVDP yields from 15.16% with no tax. In the third row the contribution rises by inflation every year. The last column converts the result into today's prices with inflation of 10% a year.

The table shows the key point that is rarely mentioned. A sum of hundreds of thousands of hryvnias in 18 years looks big, but inflation eats most of its value over that time. After tax a hryvnia deposit gives a real return of only about 1.3% a year, OVDP about 4.7%. So a fixed UAH 1,000 a month will be worth much less in 10 years than it is today.

The simplest protection is to raise the contribution every year at least by inflation: UAH 1,000 this year, 1,100 next year and so on. In today's prices the result is then almost twice as large as with a fixed contribution. You can work out your own amount with regular contributions in the compound interest calculator.

Time matters more than the amount. If you start not at birth but at age 7, the same UAH 1,000 a month on deposit gives only about UAH 261,369 over 11 years, although the difference in contributions is just UAH 84,000.

Where to keep the money depending on how far away the goal is

Saving for a child is a rare case where you have 15-18 years. Over such a term you can afford to keep part of the money in instruments that fluctuate but on average grow faster than inflation. The closer the goal, the more cautious the instruments should be.

• Deposit. Simple and guaranteed by the Deposit Guarantee Fund, but after tax it gives little above inflation. Handy for regular monthly contributions.
• OVDP. The income is not taxed, so at a similar rate bonds give more. Military bonds in Diia can be bought only by citizens aged 18 and over, so buying them in your own name is the simplest option. How to buy bonds and what happens if you sell before maturity is described in the article on buying OVDP.
• Index funds. For part of the money over 10 years or more. The risk of a fall is real, so only part of the savings and only for the long term. What they are and how to buy them from Ukraine is covered in the article on ETFs and index funds.

If the goal is tied to foreign currency, such as studying abroad, it makes sense to keep part of the savings in dollars or euros. How to compare a hryvnia and a currency deposit is worked out in the article "A hryvnia or a dollar deposit".

Starting capital: the birth payment and gifts

The birth assistance payment is UAH 50,000. Mostly it goes on the needs of the first year, but even a part put aside straight away becomes noticeable over the long term. If the whole amount went on deposit at today's average rate with monthly capitalisation, by 18 it would grow to about UAH 385,147, or UAH 69,272 in today's prices. Other payments parents receive are collected in the article on child benefits.

Money given for birthdays and holidays is also best moved straight to the goal account before it dissolves in everyday spending. Taxes here are simple: gifts from first and second degree family members, that is parents, grandparents, brothers and sisters, are taxed at a zero rate. A gift from other people, such as family friends, is formally taxable: 5% personal income tax and 5% military levy, and the recipient has to declare it.

How to involve the child

Savings the child knows nothing about only teach them that money one day appears by itself. When the child is older, show them the account and the chart of its growth: it explains compound interest better than any lesson. A teenager can be invited to add part of their own money, for example from gifts or a first job, and you add the same amount. How to get a child used to money from an early age is covered in the article on pocket money.

Common mistakes

• Putting it off. Every year of delay costs more than it seems, because interest does not have time to work.
• Not raising the contribution. A fixed amount loses value over the years. Tie the increase to a yearly event, such as the child's birthday.
• Opening an account in the child's name without understanding the consequences. If the money may be needed earlier, an account in your own name is more convenient.
• Keeping everything in one instrument for the whole term. What works for 18 years does not fit two years before the goal, and vice versa.
• Saving for the child instead of an emergency fund. First a family reserve covering several months of spending, then long-term goals. Otherwise the first crisis will force you to take money from the child's account. How much to keep in reserve is explained in the article on an emergency fund.

In short

• An account in your own name is more flexible; an account in the child's name reliably secures the money for them, but before 18 it can be withdrawn only with permission from the guardianship authority.
• UAH 1,000 a month on deposit from birth gives about UAH 705,819, but only about UAH 126,948 in today's prices.
• Raise the contribution every year at least by inflation: the result in today's prices then almost doubles.
• Far from the goal, part of the money can be in index funds; closer to the goal, move everything into deposits and OVDP.
• Gifts from parents and grandparents are not taxed, so they are easy to put straight towards the goal.

This article is for information only and is not legal or investment advice. Rates in the calculations are today's and will almost certainly change over 18 years, so the results are illustrative. Check how a particular bank and guardianship authority handle children's accounts before opening one.