From
the day a child is born, parents fear for his/her well-being, safety,
happiness and future. Securing the child's future is one of the
greatest concerns. You can make it easier by opening a savings account
for your kid in the same bank as yours. But how beneficial are these
accounts for you and your kid?
Most of the leading banks like ICICI Bank, HDFC
Bank, Citibank, Standard chartered Bank and so on have very interesting
schemes for your children. You can open your kid's account in a bank
only if you have an account in the same bank.
Citibank
offers a ‘Junior Account’ for kids, where the minimum deposit of Rs
5000 is mandatory and every month, a parent/guardian can
transfer a specific amount to the child's account (subject to a minimum
of Rs 500) through a standing instruction. The scheme offered by other
banks is also more or less the same but probably the minimum deposit
may differ.
According
to Investment Advisor, Sanjay Matai, saving account for kids is a good
idea since it helps the kids to understand the saving patterns,
interest rates and so on. “Kids can deposit their monthly pocket money
into their savings account and after some point of time, they can
utilize this money, the way they want.”
With a good number of benefits, saving account for kids also have a few shortcomings. Lets have a look at them.
Benefits
Account linked
Your
account will be linked to your child’s account. You can deposit part of
your monthly income into his/her account through standing instruction.
Saving Habit
Opening
a savings account for your child is surely a good idea. With building
up savings for your child’s futures, it also inculcates a saving habit
in him /her right from childhood.
Investment plans
Banks also
allow you to invest the balance of the child's account in mutual funds,
debt or equity products, depending on parent's preference, based on
their investment goals and risk appetite. These portfolio options range
from debt/fixed income instruments to diversified equity funds.
Banks
also tag on benefits, such as insurance, education and accident cover,
which will protect your child's future in case you die. Like, free
education insurance cover of up to Rs. 1,00,000/- for your child with
every 'Kids Advantage Account' offered by HDFC Bank. These savings are
sure to secure your child’s future.
Debit/ATM card
One
more common thing, which is observed in these kids account, is the
trend of debit/ATM cards. Banks are offering debit cards to kids at the
tender age of six or seven. Kids can use these debit cards themselves
and do not need their parent's approval. This helps them to become more
independent and take their own decisions. They can also use the money
in case of any emergency or for the educational purposes
Withdrawal Limit
There
is definitely a certain amount of withdrawal limit attached to kid’s
debit card. You can be sure that the kid cannot spend more than the
withdrawal limit. For example, the withdrawal limit for Citibank
‘Junior Account’ debit card is Rs 500 per month. This makes sure that
the child will not be able to withdraw or spend more than that.
Monitoring spending habits
Getting
mobile alerts/customising triggers/signing-up for online statements
will help the parents to constantly monitor the child's spending
habits. ICICI Bank offers a mobile banking service, which means that
whenever any transaction is made on your kids debit card, the
parent/guardian will receive an SMS on their mobile phones. In this
way, one can have a check on the child's expenditure. Banks also send
quarter/annual statement to the guardian/parent regarding the
transactions made in their kids account
Shortcomings
Kid may become spendthrift
Your
child having a debit card at the age of six, sounds exciting, but this
may also have an other side to it. Since the child has the complete
authority over the card and does not need his/her arents approval
while using it, there are chances of him misusing the card. The kid may
become spendthrift without even realizing what he is doing. This may
also lead to arrogance and pride if his friends do not have a debit
card like he does.
High withdrawal limit
Keeping
in mind the fact, that the kids would be using the card, the withdrawal
limit of few debit cards is quite high. Like, ICICI bank offers a debit
card with its 'Young Stars Account' that has a withdrawal limit of Rs.
2,500 per day. There are chances of him mishandling it. To add to that,
the limit is by default and the guardian cannot change.
Quarter/Annual statement
Most
of the banks send statement of the transactions made, quarterly or
annually, to the parents. So, the parents would just know after three
months or in some cases after a year about the withdrawals made by the
child. Therefore, it gets difficult to keep a check on their
expenditure.
However, these debit cards are voluntary, it depends upon the guardian/parent if he/she wants the child to have one. This has both the sides to it either the kid may become independent or he will become spendthrift. You must keep track of the transactions made from the child’s debit card.
Therefore,
depending upon your child’s nature and habits, you may decide whether
does he need a debit card or no. And if yes, which one? Preferably, it
should be with a low withdrawal limit. However, a quarterly or annually
account statement of your child's savings account will also be sent to
you but also ask for a mobile banking/internet banking service.
However, there are a few things to be kept in mind if you are planning to open a kid’s account. You
have to be the parent or legal guardian of the child to open these
accounts. While selecting portfolios/funds, make sure that it is based
on your investment goals and risk appetite.