How to go about managing one’s finances is a topic that is seldom dealt with in school. But if you are keen on teaching your kids about money matters , it’s never too early. Most parents often start this exercise with small change ( pocket money) to expose their children to the world of money. This helps kids get used to a regular source of income, with which they can learn to plan and save for their minor expenses.
The good old way is to have kids save their pocket money in a piggy bank. But a better, modern idea could be opening savings account in a bank for your children. This way the child is exposed to banking and terms such as interest at an early age, something that can stand her in good stead. With every credit of interest on the savings account, the child also gets to learn the concept of simple/compound interest, and thus the growth benefit of saving money with a bank.
Eligibility
Parent’s/guardians can open a bank account in the name of a minor child soon after she is born. Predictably, the upper age limit is usually 18 years (with most banks) , beyond which the account can be converted into a normal savings account (by completing certain additional account opening formalities).
You can either open a savings account for your kids, where you (parent or guardian) are a joint holder, or it can be solely in the name of your child. SBI’s PehlaKadam and ICICI Bank’s Young Stars savings accounts, for instance, require parents to be joint holders. However, children can be the sole holders of their savings account through SBI’s PehliUdaan (for children aged 15 to 18 years) and ICICI Bank’s Smart Star savings account (for children aged above 10 years).
For those of you who are apprehensive about younger kids dealing with a savings account all by themselves, you can consider some banks such as Axis Bank (Future Stars Savings Account), where the children’s savings accounts can be fully managed by the guardian, until they attain 10 years of age.
Most banks require parents or guardians to also open another savings account with the same bank, if they don’t have it already.
Interest rates and charges
In most cases, banks pay rates of interest on children’s accounts, similar to other savings accounts (currently in the range of 2.7 to 7 per cent per annum). While higher returns offered by a few banks may lure you, it is advisable to not limit your choices based on interest rate offered alone. Be mindful of factors such as initial deposit, charges on non-maintenance of monthly average balances, withdrawal limits, etc, if any.
For instance, an initial deposit of ₹25,000 is required to open a minor account with IDFC FIRST Bank. HDFC Bank requires minors to maintain an average monthly balance of ₹5,000, in their Kids Advantage Account, failing which the bank charges ₹150-300 till such time the balance is restored to the required level. ICICI Bank too mandates a minimum monthly average balance of ₹2,500/ 5,000 be maintained in their Young Star/ Super Star Savings account (basic variants), respectively. The penalty for non-maintainence of minimum balance can be up to ₹250, in the case of ICICI Bank. SBI’s PehliUdaan on the other hand, has zero minimum balance requirement, while a maximum of ₹ 10 lakh can be maintained in the kid’s account.
Akin to other savings account holders, minors (aged 10 years and above) too get the benefits of cheque book, ATM card, mobile and internet banking services, etc. The withdrawal limits and parental controls however, vary widely across banks.
For instance, for HDFC Bank’s Kids Advantage account holders, ATM/ debit card will be issued in the child’s name with the permission of the parent. The bank has set limits at ₹2,500 for withdrawals and ₹10,000 at merchant locations per day.
In the case of SBI, withdrawal/POS (point of sales) limit is set at ₹ 5,000. Similarly, the limits on mobile banking and internet banking transactions are set at ₹ 2,000 and ₹ 5,000 per day, respectively.
Parental controls
Most of the banks offering ATM/debit card facilities allow the child to spend without restrictions on use. The risk is that there could be misuse of the cards and internet PINs, or that the kid may herself spend frivolously, given the liberal limits.
Most banks permit parents or guardians to only view the transactions on the internet banking service or get alerts via SMS in some other cases. Some banks though allow parents/ guardians to personalise the limits on their child’s debit card– for instance, Citibank Junior Account and AU kids Account by AU Small Finance Bank. More conservative parents are better off opting for banks that offer guardian operated minor accounts, where transactions executed by kids, mandatorily require the consent of a guardian.
Added advantages
Some banks also offer other perks on minor savings accounts. SBI, for instance, on both PehlaKadam and PehliUdaan, offers auto sweep FD (fixed deposit) facility and an option of setting up one standing instruction for RD (recurring deposit). The bank also offers personal accident insurance cover (offered by SBI General) and Smart Scholar —a market-linked child plan offered by SBI Life. Besides, in the PehlaKadam account, parents/guardians can get overdraft against fixed deposits, subject to certain conditions.
HDFC Bank’s Kids Advantage account offers free education insurance cover of ₹ 1 lakh, upon death of parents/guardians, by accident.
You can use these extras ( for instance, auto sweep facilities and insurance) to introduce your child to the next leg of money matters – that is investments and insurance. But do keep in mind that for tax purposes, the child’s income on such investments, coupled with the interest on the savings account would, in most cases (if child’s total income exceeds ₹ 1,500 in any year), be clubbed with the income of the parent earning higher total income .
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