Children putting money in a bank savings account is better than saving in a piggy bank. Also, the money earns interest instead of sitting idle.
Most parents don’t wait till their child turns 18 to get them their own savings account. Now, seen often, parents want to open accounts for their kids to help them learn to manage their money from an early age, make them financially disciplined and save for their future. Catering to such parents, various banks offer savings account for kids, with different features.
For instance, PehlaKadam and PehliUdaan by the State Bank of India (SBI), Young Stars Account by ICICI Bank, and Kids Advantage Account by HDFC Bank are some of the popular ones. Experts suggest children putting money in a bank savings account is better than saving in a piggy bank. On top of that, the money also earns interest instead of sitting idle. However, before opening a kids savings account there are certain things that need to be considered.
If you are also planning to open a saving account for your kids, these are the 5 things to consider before opening one.
Type of Account: Banks generally offer two types of accounts for minors, one for children below 10 years of age and those between the ages of 10 years and 18 years are offered a separate type of account. For kids who have not yet turned 10, if an account is open in their name, it needs to be jointly operated with either of the parents or guardian. For between 10 years and 18 years of age, if an account is opened, the minor can operate the account themselves. However, once a child crosses the age of 18, the account becomes inactive. To keep the account active, the account needs to be converted into a regular savings account. Thereafter, the account becomes a normal savings account and is treated the same way with all requirements as applicable to a normal savings account.
ATM-cum-Debit card: Similar to a normal savings account, most banks provide ATM and debit cards with the kid’s savings account. For security and safety reasons, a few banks also issue debit cards with a photo of the kid or have the name of the parent or the child on the card. Industry experts suggest that SMS alert feature should be activated so that the parent/guardian receives automated messages after any transaction is made by the child.
Transfer of funds: Most banks allow only inter-bank funds transfer/ NEFT only. The parents/guardian needs to see that there is an auto debit option and the facility that the money from the parents’ account is debited to the minor account.
Spending limits: Parent/guardian should know withdrawal limits along with the daily and yearly maximum spending limits. The daily maximum spending and withdrawal limit varies from banks to banks. Some restrict it to Rs 1,000, Rs 2500, while others go up to Rs 5,000. Banks also impose an upper limit on the total value of money that a child can spend from the account in a financial year. Few banks also require a minimum average balance (MAB) that needs be maintained. Hence, parents should maintain that to avoid any penalty charges that generally range from anywhere between Rs 2,500 and Rs 5,000.
Security features: Most kids savings account comes with the security of zero liability. This feature protects the child’s debit card against theft or misplacement of the card and unauthorized purchases, henceforth. However, the bank needs to be informed within a certain period of time to avail of this feature.