Opening a kid’s savings account is not very different from opening a standard account. You must submit the necessary documents showing the applicant’s age, identity, and address proofs, and you may also have to make a minimum deposit. Once the account is opened, the parent will essentially have control over it until the child reaches a certain age.
Key takeaways
- Most children’s savings accounts involve no monthly fees.
- Setting up a children's savings account promotes financial literacy from an early age.
- Tailored benefits are typically offered in savings plans such as children’s savings accounts and senior citizens’ savings schemes vs. FD, which primarily focuses on accruing interest with a few other benefits.
What is a kid’s savings account
A kid’s savings account is designed for kids under the age of 18, where the parent and child act as joint account holders. A savings account gives your child a glimpse into how banks and financial institutions work and offers them a place to save their allowance. It also helps them in growing their money with interest.
Types of child savings accounts
- Custodial accounts are a type of account where you are the custodian until the child becomes an adult.
- Joint accounts are where you can share an account with your child as a joint account owner. The majority of kids’ savings accounts are set up as joint accounts.
- An educational savings account is a type of child savings account that offers tax benefits when saving for college or other educational expenses.
Should you choose a child savings account or a custodial account
When choosing between a child savings account and a custodial account, it is essential to evaluate the differences. The choice can depend on various factors, such as the child's age, financial needs, and your preference for control.
1. Child savings account:
- Parents maintain control over the account until the child reaches a certain age
- Offers child-friendly features and incentives to encourage savings
2. Custodial account:
- Account is owned by the child but is managed by a custodian until the child reaches adulthood
- Allows for more diverse investment options beyond traditional savings, including stocks, bonds, and mutual funds
- May offer tax advantages
Also read: Fixed deposit vs. savings account
What are your goals for your kid’s savings account
When opening a kid’s savings account, parents may have various types of goals in mind:
- Foster financial literacy from an early age
- Teach the importance of saving and budgeting
- Provide funds for future educational expenses
- Start building a financial safety net for the child's future
Should you use a kid’s savings account to save for college
While a child savings account promotes financial literacy and responsible money management, it may not be the most effective option for college funds due to the following reasons:
- Children’s savings accounts in India provide modest interest rates.
- Unlike PPF or education loans, savings in a regular kid's savings account may not provide tax benefits for education expenses.
- Without such benefits, the growth potential of savings in a kid's account may be limited, potentially falling short of funds required for college.
What interest rate can you get on a children’s savings account
Interest rates on children's savings accounts in India can vary based on the bank and the type of account. The best children’s savings accounts generally offer competitive interest rates ranging from around 3% to 5% per annum.
What features should you look for in a kids’ savings account
- Banks can offer an automatic savings deposit option that allows the parent to transfer a certain amount into a child’s account each month.
- Consider exploring alternatives to a savings account, such as specialised savings accounts with educational resources or custodial accounts for diversified investments.
- Some banks offer ATM cards to let children withdraw cash from their savings accounts.
What are the fees and requirements of a children’s savings account
Kids’ savings accounts tend to be straightforward, but some banks may have different requirements:
- Minimum opening deposit: Some banks offer accounts with no initial deposit requirement, whereas others may require a nominal initial deposit ranging from Rs. 100 to Rs. 1,000.
- Minimum daily balance: While most children’s savings accounts do not require the child to keep any money in the account, some may require a minimum daily balance to avoid a fee.
- Monthly maintenance fees: While the majority of children's savings accounts in India typically waive monthly maintenance fees, certain banks may impose such charges.
What documents do you need to open a kid’s savings account
To open a children's savings account in India, you will require the following documents:
- Child's birth certificate
- Identity proof of the child (school ID) and the parent (Aadhaar card, PAN Card, or passport)
- Address proof
- Child’s photograph
What is the minimum age to open a bank account
In India, many banks offer specialised child savings accounts from birth, managed by parents until the child reaches the ages of 10–18 years.
What happens to a kid’s savings account when the child reaches age 18
Banks often automatically change a child savings account to a regular savings account when the child turns 18. This shift grants them unrestricted access to the funds, allowing them to manage the account independently. Depending on the bank, additional paperwork and fees may apply.
Bottom Line
Setting up a children's savings account is a proactive step towards instilling responsible money management habits. While banks typically do not pay high yields on these accounts, they can still be a meaningful tool to start your child on a responsible financial path from an early age.
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