These days you don't have to wait till your child turns 18 to let them experience using their own savings account as many banks have accounts aimed specifically at children.
This is all thanks to the Reserve Bank of India (RBI) allowing banks to offer savings accounts to minors above the age of 10 that they can operate themselves, back in early 2014.
Since then we have seen many banks launch or even tweak their already existing minor accounts. For instance, ICICI Bank has its Young Stars Account, State Bank of India has PehlaKadam and PehliUdaan, HDFC Bank has Kids Advantage Account, and Union Bank of India has its Youth Banking Accounts. You can even open minor accounts for children below the age of 10 years.
Here are a few important things to consider while zeroing in on such an account.
Age of the child
Most banks have two separate versions of accounts for minors - one for those below 10 years and another for those between the ages of 10 years and 18 years. When you open an account in the name of a child who has not yet turned 10, it has to be operated jointly with the parent or guardian. Whereas those opened for a minor between 10 years and 18 years of age can be operated by the child.
Once child becomes a major: When the child turns 18 years old or becomes a major, the account becomes inoperative. It has to be converted into a regular savings account before it can be operated even by the child. Even the cheques issued by the parent and presented for clearing after the conversion of the account might not be cleared.
Thereafter, the account is treated as a normal savings account and the child has to fulfil the account opening requirements as applicable to normal savings account. Once the account is converted, the parent can no longer operate it.
The minor bank accounts are restrictive in nature and not all features could be available compared with a normal account. Facilities like Internet banking, ATM or debit card, cheque book facility etc., would still be there in a minor's account but they will be subject to safeguards and restrictions.
Internet usage
The child gets access for Internet usage, albeit with strings attached. While applying for the account, banks get the mandate from the parent or the guardian to issue a login ID and password to the child to carry out permissible banking transactions. All indemnities are therefore deemed to have been made by the parent or the guardian. Not all may provide a transaction password to transfer funds from minor accounts, so check with the bank before opening it.
Funds transfer
Make sure the account provides a 'standing instructions' facility to debit money from the parents' account to the minor account. Also, most banks would allow only inter-bank funds transfer (NEFT only).
Debit card
Few banks issue a photo ATM-cum-debit card, while some may carry the name of the parent or the child on the card. Make sure, the SMS alert feature is active to receive automated messages after transactions. Make sure you take the child to the ATM to show how to withdraw money safely.
Spending limits
Get to know the daily and yearly maximum limits for spending and withdrawals. Some banks have a daily maximum spending limit of Rs 1,000, Rs 2,500, while others have Rs 5,000. Some banks may impose a cap on the value of total debits in the account in a financial year. It could be say, Rs. 50,000 without parental consent and Rs 2 lakh with the consent.
Minimum balance
Most such accounts will require a minimum average balance (MAB) to be maintained, so make sure it is adhered to to avoid any penalties. MAB can be anywhere between Rs 2,500 and Rs 5,000 for most banks.
Cheque book
See if the account comes with a personalised cheque book for the kids. Show your child how to draw a cheque and once the monthly statement arrives, show them how it is gets reflected in it.
Banking communications
See how the bank communicates with you on the transactions done on children account. Choose accounts where such transactions are communicated to your via email and SMS. Some banks may provide free quarterly statements and free email alerts.
Protection
Ask about the protection feature in the account. Some accounts have the security of zero liability, a unique feature that protects your debit card against unauthorised purchases on loss, theft or misplacement. All one needs to do is intimate the bank within a certain period.
KYC requirement
In case of account for minor below the age of 10, the date of birth proof of the minor and the parent's Aadhaar and PAN will be the required else only the date of birth proof and Aadhaar of the Minor will be the KYC requirement.
What you should do
Use this opportunity to teach your child about safety standards when it comes to managing money especially while transacting online. Familiarise your child with the importance of a PIN, username, passwords, mobile OTP etc.
Also, take your child along with you while visiting the bank to open the account and handhold them while accessing Internet banking for the first time. You could also get them to fill out the know-your-customer detail forms for the account, at least the parts that they can fill.
When the child becomes a little older, i.e., after he turns 10, and can use the account on his own, make sure you keep a close watch on the transactions that happens in the account. Keep a monthly budget and make sure he doesn't overspend. Sit with them and go through the monthly statements to see how their spending habits can be improved.
