Savings might have been synonymous with piggy banks when we were children, but not any longer. The needs and demands of today’s children have multiplied and traditional methods of imparting a lesson or two on money are passé. To familiarise the new generation kids with the basics of managing finances, banks now offer special savings bank (SB) accounts for children replete with personalised debit cards, Internet banking, SIP and sweep options. Here’s what’s on the plate: and the good and bad of it:
Believe it or not, you can open an account in the name of your child the next thing after you have seen her coming into the world. Predictably, the upper age limit stands at 18, beyond which the account can be converted into a normal savings account (by fulfilling certain additional account opening formalities). Some banks such as Karur Vysya Bank set the upper limit for a child account at a lower age of 12 years.
While accounts can be opened even for a day-old child, most banks require it to be tagged to a ‘guardian’ account. The Indus Young Saver account from IndusInd Bank, for example, allows minors to open and operate an SB account on their own if they are over 12 years of age. Else, the account will be opened as an ‘under guardian’ account where the parent shall be operating it. Similarly, Punjab National Bank allows children only above 10 years of age to operate their accounts independently. In other cases, banks at least insist either the parent or the guardian of the child should also be an account holder in the same bank. If not, both the accounts i.e. that of the child and of the parent/guardian can be opened simultaneously.
Documentation requirements for these accounts are quite simple revolving broadly around providing photographs, proof of age of the minor, proof of identity and address. Standing instructions can be given to transfer money from the account of parents to the child’s account.
Banks like KVB are among the conservative, adding almost no frills to its Jumbo Kids account except a debit/ATM card. But, Internet banking facilities, investment options as well as offers on cards are available aplenty. HDFC Bank offers ‘sweep’ facility to its ‘Kid’s Advantage Account.’ Once the balance reaches/exceeds ₹35,000, the amount in excess of ₹25,000 will automatically be transferred to a fixed deposit for 1 year and 1 day, in the child’s name, fetching higher returns than what a normal SB account would bring. ICICI Bank’s ‘Young Star’ account also offers money multiplier facility. This facility would teach a child ways to invest and earn more. Citibank introduces the world of stock markets to children by enabling investments into mutual fund SIPs from the account. An SIP begun early and continued for the long-term could help in creating a corpus for the child’s higher education or other needs. Many banks offer different forms of insurance cover as an add-on. HDFC Bank, for example, offers free education insurance cover of ₹1 lakh in the event of death of parent or guardian from an accident. Kotak Bank offers exclusive discounts and privileges across shopping, dining and entertainment for children.
Food for thought
While there are many benefits that flow from making your kids financially independent, there are a few things you need to consider. One, you need to review the liberal spending limits that almost all banks offer. Yes, banks like Citibank allow parents to set limits on the child’s debit card to curb expenses. Some such as PNB allow only ‘view’ facility on the Internet or in mobile banking in a bid to prevent transactions, and a few others hand out a debit card to children only after they reach a certain age.
But most banks offering these facilities give the child a free hand. Would you give a debit card to your offspring with a daily spending or ATM withdrawal limit of ₹1,000/ ₹2,500/₹5,000? Not unless you are really rich or you want your children to become spendthrifts!
Second, the minimum balance requirements and the cost associated with these accounts also need to be taken into account. HDFC bank puts the average quarterly balance requirement at a somewhat high ₹5,000, though City Union Bank’s ‘Juniors India’ account is more considerate and keeps the monthly average balance requirement at ₹100 (₹250 for accounts with cheque books).
Axis Bank, on the other hand, waives monthly average balance requirements if a recurring deposit of ₹2,000 a year or a fixed deposit of a daunting ₹25,000 for six months is initiated. And, non-maintenance of minimum balance is chargeable. Non-maintenance of average quarterly balance in the HDFC Bank kids’ savings account, for example, would cost a not-so-small ₹150-300.
A more important point to consider is whether children would be careful with their debit cards and Internet pins and passwords or would such facilities give room for misuse?