Go from piggy bank to bank account

Piggy banks are so yesteryear-like. A ‘bank’ these days is an actual bank account complete with cheque books and ATM cards.

A kid’s account is opened in his or her name. It’s not like a joint account which you open with a minor.

As a parent or guardian, you are the authorised signatory for the account and you’re held responsible for the account as well. Interest rate on the account is the same as other savings accounts — usually 4 per cent per annum.

But are all kids’ accounts the same? Are there drawbacks? Here’s more to help you decide.

Not all banks offer kids’ accounts. Only a few do, such as Axis Bank, Citibank, HDFC Bank, ICICI Bank, ING Vysya, Karur Vysya, Kotak Mahindra and YES Bank. The features of the accounts on offer have slight variations, making some more suitable than the others.

First of all, to open an account, the parent or guardian must have an account with the bank, except Axis Bank.

You can open both yours and your child’s account with the bank at the same time, though. The child should be less than 18 years to open an account; Karur Vysya Bank, though, caps the age at 12.

Maintaining minimum monthly balance is required even in a kid’s account. HDFC Bank, for example, charges ₹100 a month if the average monthly balance of ₹5,000 is not maintained.

Banks can waive the requirement if fixed or recurring deposits of certain minimum amounts are opened. Axis Bank and YES Bank are among those offering this alternative.

Cheque books are offered by all banks (except KVB). ATM and debit cards are also offered by all. The cards are, however, issued only if you apply for them.

Age limits for issue vary, with the minimum age ranging from seven to 15 years. As with regular ATM cards, fees are charged if these are used at machines of other banks more than five times a month.

The manner in which these cards can be used also differs. Some set their own limits on spending and withdrawal.

ICICI Bank, for instance, sets the daily limit at ₹5,000 — a tad high for a child! HDFC Bank is not any better with its daily limit at ₹2,500.

Accounts with Citibank and YES Bank are a better bet, since they give parents the flexibility to set their own daily limits. Internet banking is usually provided.

But YES Bank and KVB are restrictive on this front, with the former offering only viewing access to bank accounts and no transactions, and the latter dispensing with internet and mobile banking altogether.

Money can be conveniently deposited from your account into your child’s via NEFT transfers. Investments in mutual funds you’ve set up for your child can also be done through the account.

Apart from basic features, some have value-added services. These can be free insurance covers, typically for ₹1 lakh for death by accident of the first guardian or parent.

Others, such as HDFC Bank, have a sweep-out facility if the account balance crosses a threshold.

Once the child becomes a major, the bank will send an intimation to convert the account into a regular savings account – this includes providing fresh proofs of identity, address and the works. Failure to convert, or close, the account on time results in the bank freezing the account.

Having a bank account at an early age is a lesson on how interest rates work, savings grow, and ways to manage money responsibly.

To this end, go for those banks which restrict usage of accounts, since it curbs spending and forces saving.

Banks that give you the choice of setting withdrawal and spending limits on debit or ATM cards are a good option.

Those with lower or no minimum average balances are preferable — you won’t have to fork out more money just to keep the balance in check. Finally, those that don’t allow making transactions online can be preferred.

Getting an ATM card issued is your choice, but it is advisable since it saves the need to visit the bank branch to withdraw money, especially since banks slap a charge if the number of visits a month exceeds a limit.

Keep track of your child’s spending through the internet banking facility since account statements are sent only periodically.

You do, however, run the risk of passwords and PINs being misused if your child is careless with the same. But then, that could be a valuable, if harsh, lesson in handling responsibility. Given these factors, accounts offered by Citibank, YES Bank, and Karur Vysya Bank are attractive options.

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