Come a festival, a birthday or a good report card from school, it is not uncommon for parents and grandparents to dole out monetary gifts to their children and grandchildren. The days when these monies would idle in piggy banks are passé. Now, plenty of banks offer attractive savings accounts for children to help their gifts grow with them.

Banks such as Kotak Mahindra bank, YES Bank, ICICI Bank, Karur Vysya Bank and Bank of Baroda, to name a few, allow opening of child savings accounts. At some of these banks, you can even open an account for a child as old as one day! These accounts help inculcate a savings habit in children, regulate their spendings and enable children to see their wealth multiply over a period of time.

But, note that opening this account comes with its own set of conditions.

Opening an account Most of the banks expect a parent (or the guardian) to have an account in their name with the same bank before they open an account for the child. Besides, there are minimum balance requirements to be met in many cases and wavier of the same, on meeting some other conditions.

In Kotak Mahindra Bank (KMB), for instance, an average monthly minimum balance of ₹5,000 is expected to be maintained in a child savings account. But, the bank waives this minimum balance requirement if the parent account holder maintains a three-year recurring deposit in the name of the child. The minimum amount required to be invested in this recurring deposit is ₹2,000 per month. This savings will earn a normal recurring deposit rate of interest (currently 7.25 per cent).

Similarly, at ICICI Bank, the average monthly minimum balance requirement is ₹2,500. But the criteria to maintain zero minimum balance seems more stringent. It calls for a parallel recurring or a fixed deposit in the child’s name with a minimum value of ₹1.25 lakh. While, YES Bank’s condition is similar to that laid down by ICICI Bank, the requirement for zero balance seems less stringent.

Here, a minimum fixed deposit of ₹25,000 in the child’s name should suffice.

However, old world banks seem a bit more reasonable. Bank of Baroda and Karur Vysya Bank, for example, expect a quarterly average minimum balance of ₹500 and nil, respectively.

The interest rate varies across banks, ranging from 4-6 per cent. To open a child savings account, documentation requirements include address proof, identity proof and proof of age for the minor.

Regulated withdrawal As the savings multiply and the child turns 10, most banks allow the kids to own an ATM /debit card and operate it as well. Parents have the option to set the maximum daily/weekly/monthly/yearly usage limits both for shopping and withdrawal. Apart from this, most of these banks place a maximum limit for usage and a withdrawal limit of ₹5,000 per day, exceptions being those such as Karur Vysya Bank, which allows a maximum withdrawal of ₹10,000 per day.

ICICI Bank gives the option to upgrade the ‘Young star’ account to ‘Smart star’ once the child turns 10. This account can be opened and operated completely by the child above 10 years of age. The account has a debit card transaction limit of ₹50,000 per year. With the parent’s consent, this can be raised to ₹2,00,000 per annum.

Bank of Baroda allows minors between the age of 10 and 14 to have a maximum sum of ₹1 lakh in their accounts and operate them independently. However, to save beyond ₹1 lakh, it is mandatory that the child holds a joint account with his parent or guardian.

Added features KMB gives special discounts in some selected outlets for child account holders, thus allowing purchase through his or her debit card. The bank helps parents monitor their child’s spending habits too.

The parents get an SMS about every debit purchase in a store or when cash is withdrawn. The parent also have the option to call the bank’s customer care and lock the card, if they wish the child makes no further transaction without their consent.

YES Bank offers cheque book facility for the child. But, the cheque needs to be signed by the parent or the guardian.

Though operationally, the child has the freedom to withdraw money under prescribed limits, for all tax-related purposes, the account is treated as the extension of the parent’s account. Hence, unless the child earns the income solely by his/her talent and skill, the tax on the interest earned in the account is charged to the parent.

Related Topics