October 1, 2013

Kids Savings Account-Benefits and Feasibility

One of the best ways to educate your kid about money matters is making them aware about the banking transactions. Otherwise they may think “Money grows in ATM”. So the easiest way to do so is opening the kid’s or child’s savings account. Currently plenty of banks offer such kids saving account.

Usually such accounts are joint account. Wherein parents will be a joint holder with kids. When your kid turned major i.e. 18 years old then you need to inform to your banker and the same account will be converted to a normal savings account. Before proceeding further let us see what you need to look in before going ahead of opening kids saving account.

1) Type of a Bank-A well named and well serving banks will be the most choosen. So go ahead with the bank which provides you the best service and offering such kid savings account. Because in the end service you receive from your banker will meant a lot when educating your kid.

2) Fees and Charges-Look for the fees and charges banks levy on such accounts. Also be sure that there will no hidden charges on such accounts. Minimum balance also matters a lot when you are looking for fee and charges. So opt for the lowest minimum balance account.

3) Age of your kid-As your kid is treated as minor and you are referred to as guardian of that account, it is better to choose the options based on your kid’s age. Stop few facilities which you may feel redundant. Also there some limits of facilities upto your kid reaches the age of 10-12 years. So based on your kid’s age go for the services.

4) Interest rates-Look for the best interest rate offering bank. You are keeping your idle money simply to make your kid aware about financial transactions. Hence getting more out of such idle money will be a wise choice.

5) Service to your kids-Ask banks what special service they provide to make your kid enjoy about banking facilities and in return how your kid will learn the banking facilities in a better way.

Now let us see few major Bank’s kids saving account feature.

Kids Saving Account

NoteI have specifically not included the fees and charges as the list is big for each bank and not possible to mention over here. But by visiting the respective site or contact banks you may get this data.

Caution for Parents-Make sure that your kid knows well all the transactions related to Banks. But in the meantime always have an eye on the transactions he/she do. Else maintain the strict minimum balance limits of transactions.

Taxation of Kids Savings Account-Whatever kids account earn as interest from kids saving account will be taxable under the head of “Income From Other Sources” and will be taxed according to the parents tax slabs.  Because clubbing of income of minor children will be treated as the income of parents until and unless the kids have their own manual work or action arising from  talent, knowledge or skill. But you can claim an exemption of Rs.1,500 from such  earnings per child under Sec 10 (32) of income tax.

Update (6th May 2014)

Below is the RBI Notification regarding Opening of Bank Accounts in the Names of Minors-DBOD.No.Leg.BC.108/09.07.005/2013-14 Dated 6th May 2014.

Please refer to our circular DBOD.No.Leg.BC.158/C.90(H)-76 dated December 29, 1976 wherein banks were advised to allow minors’ accounts (fixed and savings deposit accounts) with mothers as guardians to be opened subject to safeguards in allowing operations in such accounts by ensuring that the minors’ accounts opened with guardian are not allowed to be overdrawn and that these always remain in credit. Also, please refer to our circular DBOD.No.Leg.BC.19/C.90(H)-89 dated September 8, 1989 extending the facility, of allowing opening of minors’ account with mothers as guardian, to Recurring Deposits.

2. Further, with a view to promote the objective of financial inclusion and also to bring uniformity among banks in opening and operating minors’ accounts, banks are advised as under:

  1. A savings /fixed / recurring bank deposit account can be opened by a minor of any age through his/her natural or legally appointed guardian.
  2. Minors above the age of 10 years may be allowed to open and operate savings bank accounts independently, if they so desire. Banks may, however, keeping in view their risk management systems, fix limits in terms of age and amount up to which minors may be allowed to operate the deposit accounts independently. They can also decide, in their own discretion, as to what minimum documents are required for opening of accounts by minors.
  3. On attaining majority, the erstwhile minor should confirm the balance in his/her account and if the account is operated by the natural guardian / legal guardian, fresh operating instructions and specimen signature of erstwhile minor should be obtained and kept on record for all operational purposes.

3. Banks are free to offer additional banking facilities like internet banking, ATM/ debit card, cheque book facility etc., subject to the safeguards that minor accounts are not allowed to be overdrawn and that these always remain in credit.

12 Comments

  1. Dear Basu,
    Thank you very much for the article. I’ve a 7 year old son, and have 10 years to save for his education. I want to start with 4k- 5k per month in equity mutual funds. I there any advantage of routing the investment through a minor savings account.
    Any other comments/ suggestion is also welcome.
    Regards
    Amrtya

    Reply
    • Dear Amartya,
      There are no special benefits. Hence, you can invest in your name.

      Reply
      • Thank you so much Basu.

        Reply
  2. Can we have PPF account in the Bank account for kids
    Do these banks provide PPF Account

    Reply
    • Sachin-PPF can be opened in name of minor. But parents must be guardian. Check with your bank whether they allow PPF to open from kids savings account.

      Reply
      • Thank you

        Reply
  3. Hello, I have same question as ayush. Which equity mutual funds Wil u suggest… What about child insurance policy n all

    Reply
  4. Hi Basu, I am going to be father next month and I want to save for my child. I can invest upto Rs50000 per year.Can u suggest me which plan out of the below are Best. Bank FD, Bank RD or PPF or jeevan Anand policy? Kindly reply on [email protected]

    Reply
    • Ayush-None of the plans mentioned by you are worth to generate the best return for your kid’s future. Stay away from these plans. Simple thing to follow is, have enough term insurance and start investing in equity mutual fund for the long term view. Never stop in the middle even if markets tumble (this is the best opportunity actually to invest). See the fruits after 15 to 20 years 🙂

      Reply
  5. Dear Basu,

    Is it possible to keep kids account separate from ones own personal bank account, if pan card obtained for them.? what if they can earn dividend as source of income + have a pan card? – read some where but needed your feedback too.

    Reply
    • Partho-Above mentioned kids account are entirely separate accounts to your own accounts. Only you are acting as a guardian for your kid’s account. Please read the last few lines about taxation for minor children, the same rule applies for whatever be your kids’ earnings.

      Reply

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