Gone are the days when savings was synonymous with piggy banks when you were a kid. Owing to the integration of technology, the demands and needs of children today have multiplied, which has made the conventional methods of conveying lessons on finance passé. To accustom the new generation kids with the fundamentals of managing finances, many banks offer special savings bank accounts for kids replete with internet banking, personalized debit cards, SIP, RD and sweep in fixed deposit options. However, as minor savings bank accounts come with distinct variations and features, parents must know a few things before zeroing on an account.
- Age of the child
Banks usually offer 2 kinds of minor accounts, one for the children below 10 years of age and another for between 10 years and 18 years of age. Some banks also allow minors to open and operate a savings bank account on their own if they are over 12 years of age. When you open a savings account for a child below 10 years of age, it needs to be jointly operated by either of the parents or guardian on behalf of the minor. However, minors above the age of 10 or 12 years can independently open and operate the account on their own. However, once a child turns 18 years old, the account becomes inactive. The account should be converted into a regular savings account to keep it active. On conversion, the account is treated the same way as in case of a regular savings bank account.
- Minimum average balance
A minor savings account or kids savings account generally requires the guardian/minor to maintain a minimum average balance which may range anywhere between nil and Rs. 5000. Failing to adhere with the minimum average balance requirement attracts a steep penalty in form of non-maintenance balance charges. Note that some banks may waive the minimum average balance provided the minor’s account is linked with the parent/guardian savings account or RD/SIP feature is activated on the minor savings account.
- Customized debit card
Like normal savings accounts, most banks provide debit cards to minor savings accounts. For safety and security reasons, some banks also issue customized debit cards with a child’s photo or parent/child’s name on the card. To keep track of your child’s transactions, make sure to activate the SMS feature to receive an automated message on your phone.
- Spending limit
On minor savings account, the child is given access to account with a lower limit than a regular savings account, in terms of spending and withdrawal limits. This assists to ensure that while the child has access to funds when required, they do not overspend. A spending limit of usually up to Rs.10,000 per day is allowed at merchant locations per day while a withdrawal limit of usually up to Rs. 5000 per day is allowed through ATMs. Also, some banks impose a cap on the total debits in a financial year. For instance, a transaction limit of generally up to Rs. 50,000 in a FY is allowed without parental consent while a transaction of up to Rs. 2 lakh in a FY is permitted with parental consent.
- Fund transfer option
Standing instructions to transfer any amount (minimum Rs.1000) from parents/guardians account to minor’s savings account every month has been made mandatory by some banks. This enables auto debit money from the parents/guardians savings account to the minor savings account.
- Availability of investment options
To promote investment among children, most banks offer facilities such as sweep in fixed deposit, recurring deposit, and SIP. Activation of sweep in facility transfers the excess balance in your child’s account to fixed deposit while through RD/SIP a predefined amount is parked in a long-term deposit avenue every month.
- Insurance cover
Some banks offer insurance cover on education in the event of the death of parents/guardian due to an accident by air, road, rail to safeguard the future of the child while others offer purchase protection on goods the minor purchases via debit card.
A savings bank account is one of the best ways to instill financial discipline among kids. The interest generated on such accounts would allow your kid to know the importance of parking funds. However, note that parents’ supervision is extremely necessary when maintaining such accounts.