5 Essential Points to Consider when Opening a Savings Account for a Kid

Every parent worries about their kid’s future and a prime concern is the financial department. As a parent, you want to take responsible decisions regarding their finances. Fortunately, there is a way to invest in their financial education and empower them to make measured decisions regarding money early on in life. 

The Reserve Bank of India (RBI) allows banks to open savings accounts for children over the age of 10, which they can operate themselves. This means you don’t have to wait until your child is of age to open a bank account for them.

Why Open a Savings Account for your Child  

There are quite a few benefits of opening a kid’s savings account. 

•   Inculcates the habit of saving

Opening an account for your kid is a good way to teach them the value of saving, as they can see their money grow. The interest earned on a saving account compounds over time, encouraging your child to save more. This also teaches kids to spend wisely and prioritise saving.

• Helps pay for big-ticket expenses 

A savings account for your kid can also help you pay, at least in some part, for large future expenses like college fees. It also instils the values of planning for the future and start saving well ahead of time.

•  An emergency fund 

Having a savings account for your kid can help them navigate the proverbial rainy day. Whether it’s a health emergency or some other unforeseen event, the savings can come to your family’s rescue.

Things to Consider When Opening an Account For Your Child

Before you decide on opening a savings account for your kid, there are a few things you should keep in mind.

Age Limit

The age threshold for operating a bank account on one’s own is typically 10-12 years. You can also open a savings account for a younger child but it has to be jointly operated by the kid and the parent/guardian.  

Funds Transfer 

While opening a savings account for your kid, make sure that the bank provides the facility of “standing order” so you can transfer a fixed amount of money from your account to the kid’s at regular intervals. This saves you the hassle of having to manually transfer funds.

Internet Banking 

You should check with your bank for the details on how online transactions from the kid’s account will work. There should be a login ID and a password issued for online transactions. You should also make sure that there are limits set on online transactions.

Minimum Balance 

There are rules for minimum balance to be maintained in the child’s savings account. You could be penalised if the funds fall below this. Most banks have their minimum balance amount set between Rs. 2500 and Rs. 5000.

Spending Limit 

Before opening your child’s savings account in a bank, check out their daily and yearly maximum spending limits so that your kid is not able to spend more than the permissible amount. The daily maximum limit for spending and withdrawal can be anywhere from Rs. 1000 to Rs. 5000, depending on the bank.

The Bottom Line

All in all, you’re not only allowed to make an account for your under-18 child but it is highly advisable as the kid can derive some invaluable lessons from this experience. You just have to make sure that you choose the right bank to derive the maximum benefits in a safe and financially responsible manner.