As a parent, you want to give your child the best possible start in life. While education, love, and support are critical, securing their financial future is another powerful way to set them up for success. 

One often-overlooked tool for this is a tax-free savings account (TFSA) – a flexible investment account that can grow tax-free wealth over time. By investing in your child’s TFSA, you’re not just saving money for the long term; you’re planting the seeds for long-term financial independence. 

In this article, we’ll explore the benefits of investing in your kids’ TFSA.

The benefits of tax-free savings

The tax advantages of a TFSA are a game-changer for building wealth, especially for your child. Although TFSA contributions are not tax deductible, the interest, dividends and capital gains of the investment returns (i.e. the growth) are completely tax free, making it an incredibly efficient vehicle for long-term savings.

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For your child, this means that every rand earned within the TFSA stays in their pocket, not the government’s. 

If there’s one financial principle that stands above the rest, it’s the power of compounding. Time turns small investments into massive sums through the exponential power of reinvested returns. By maxing out your child’s TFSA, you can give their money decades to grow.

There are contribution limits for the TFSA. Specifically, R36,000 is the annual limit and R500,000 is the lifetime limit. If you are in a position to maximise the annual limit, it will take almost 14 years to max out your child’s TFSA. Put differently, you could max out your child’s TFSA by their 14th birthday assuming you started immediately.

To demonstrate the impact of that investment, let’s consider what the returns could look like with 10% annualised growth investing into your child’s Franc TFSA account starting the first year they are born:

🎉 14th birthday: R 1.1 million
🎉 18th birthday: R 1.5 million 
🎉 21st birthday: R 2.0 million
🎉 30th birthday: R 4.8 million
🎉 40th birthday: R 12.5 million
🎉 50th birthday: R 32.4 million
🎉 60th birthday: R 84 million

You can clearly see the exponential impact of compound growth resulting in a R84 million retirement nest egg that could reasonably generate R1.6 million in annual dividends. Again, it’s worth appreciating that income is tax free.

This is the ultimate advantage for your children. An investment made in their childhood that results in 30, 40, 50, or even 60 years to grow, dwarfing what you could achieve starting later in life. 

This is why starting a TFSA as soon as possible is so powerful—it leverages their youth into a financial head start. Whether they use the funds for a new home, education, or retirement, that nest egg will give them options you might wish you’d had.

Of course, compounding requires patience and consistency. Market dips will happen, but over decades, the trend is upward. The earlier you start, the more resilient the portfolio becomes to short-term volatility, letting time smooth out the bumps.

The best strategy to invest in your kid’s future

So, how do you make the most of a TFSA for your child? It’s not just about opening the account – it’s about investing consistently and wisely. Here’s a practical strategy to maximise their future wealth while keeping risks in check:

  1. Start early and maximise contributions: As soon as you have your child’s birth certificate you should open up a Franc TFSA account for them and fund their TFSA up to the annual limit of R36 000. If you’ve saved money for your child before their birth then transfer it over as a gift, being mindful of the R100,000 annual donation tax limit. 
  2. Focus on growth-oriented investments: Since your child has decades ahead, prioritise low-cost equity index exchange-traded funds (ETFs). A broad-market ETF tracking a global portflio offers diversification and historically delivers 6-10% average annual returns reinvesting dividends. You should avoid conservative options like bonds as equities will outperform them over the long run.
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We’ve got strong opinions on what we believe is the best underlying fund to invest in with your TFSA. Find out about it here.
  1. Automate: Set up automatic contributions to their TFSA to ensure consistency – treat it like a bill that must be paid. 
  2. Educate your child: A TFSA isn’t just a gift of money – it’s a lesson in financial responsibility and the importance of investing. Teach them how it works, why it matters, and how to avoid the temptation of early withdrawals (which, while tax-free, reduce compounding potential). Encourage them to take ownership by contributing their own pocket money or income as they start working

Wrapping it up

Investing in your child’s tax-free savings account is a brilliant way to secure their financial future. The tax benefits protect their gains and compounding turns small sums into fortunes over time. Be smart – start as early as you can and invest in low-cost diversified index-tracking ETFs. 

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Open a TFSA in your child’s name with Franc: Once you have a Child Account set up on your Franc account, all you need to do is click on the Child Account card and select the option to 'Add Tax-Free Savings Account'.