5 Things to Consider When Opening a Children’s Savings Account
A unique way to secure your child's future is to begin by teaching them the basics of banking at an early age. From instructing them on how they can manage their finances, use great saving options on their behalf through Systematic Investment Plans [SIPs] and allowing them to experience new banking methods, a children's savings account can greatly help secure your child's future.
Points to consider
As a primary point of contact, a savings bank account for your child can be helpful for several reasons. Chief among them is the ability to show them how to save money at a young age and use it for emergencies. Typically, to open a savings account for your child, you need to consider some factors.
Your child's age
Children above ten can open and operate bank accounts themselves, according to the Reserve Bank of India (RBI). In that regard, banks now segregate savings bank accounts for children in two distinct categories:
- Below ten years of age
- Between 10 to 18 age group
Once your child becomes an adult, the account gets converted into a regular savings account.
Additional read: How to file your child's first Income Tax
When opening a bank account for your kid, look into the spending and withdrawal limits particularly laid down for a children's savings account. For instance, one bank may lay down a cap on the number of debit transactions on a children's savings account in a financial year.
To popularize children's savings account, banks today offer debit card options as well. A debit card can be a valuable tool to teach your child how to spend sensibly and monitor their transactions through SMS and email alerts.
Minimum balance requirement
A children's savings account will require you to maintain a minimum balance. Hence, it is crucial to ensure that the account is sufficiently funded at all times to avoid penalties.
Internet banking and mobile banking
Since most banking transactions have gone online, it can be an excellent time to teach your child how to operate their accounts from anywhere via the Internet. When teaching them how to monitor their bank account, you may want to instruct them on safety precautions such as avoiding sharing passwords and login IDs.
Additional read: How to trade in shares through a demat account
Why it makes sense to open a savings account for your child
First-hand experience of banking
Giving pocket money in cash can now be done away with when you open a savings account for your child by depositing it directly into their account. You can further teach your child how to use their debit card to remove cash from ATMs and make payments at merchant outlets for their purchases.
Through their savings account, children can learn how to set limits on their debit cards to control expenses. As a guardian, you can issue standing instructions from your account to your child's bank savings account through the bank's banking platforms — Internet and mobile banking. Besides, you can transfer money smoothly to your child's account and invest on their behalf in a broad range of investment products such as fixed deposits, mutual funds, securities and more.
SIPs for your child's future
You can make use of your child's bank account to invest on their behalf through Systematic Investment Plans. SIPs at an early age can help maximize the potential of building your child's wealth over the long run.
One of life's valuable money lessons is prioritizing the concept of saving over the thought of spending. And since savings as a habit takes time to learn, opening a savings account for your child can help you introduce budgeting concepts to them early. Allow them to set spending limits and monitor their purchases carefully as the first and foremost lesson in money management for a successful financial life.
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