Should children have a savings account?

Remember the childhood days when we used to save every single penny in a cute little piggy bank? Whether it was a rupee earned for running errands or fetching a pail of water for grandma or a few bucks tucked into our palms as pocket money, it always found its way into this bank. As the jingle of coins kept us guessing on our riches, the day the piggy was opened was truly festive. What fun we had buying our favourite toy with that ‘hard-saved' money or hanging out with friends at the ice-cream shop! Well, those were simple times. Today, our wants have multiplied and banks have stepped into our shoes to take care of the financial needs of our children.

What's on offer?

Parents opening the routine savings account jointly with minor children is now passé!

To encourage your child to start young, many banks offer attractive savings accounts, exclusively for children. Believe it or not, the ICICI Bank Young Stars account, for example, can be opened even for a child who is only a day old! The upper age limit, predictably, stands at 18, beyond which the account can be converted into a normal savings account (by fulfilling certain additional account opening formalities). Others such as Karur Vysya Bank set the upper limit at a lower age of 12 years.

One important criterion across banks for opening this account is that either the parent or the guardian of the child should also be an account-holder in the same bank. If not, both accounts can be opened simultaneously.

The documentation requirements for these accounts are quite simple revolving broadly around proof of age of the minor, proof of identity and address. In terms of the minimum balance requirements though, there are wide variations.

While HDFC bank puts the average quarterly balance (AQB) requirement at Rs 5,000, City Union Bank's ‘Juniors India' account keeps the monthly average balance requirement at Rs 100 (Rs 250 for accounts with cheque books). Axis Bank on the other hand, offers an additional zero balance minor account for existing customers.

Banks like KVB have remained among the conservative, adding almost no frills to its Jumbo Kids account except an ATM card. But, offering personalized bank statements, chequebooks, debit cards and internet banking facilities, most other banks give children a taste of financial freedom.

Value additions

At the same time, as fund-flows into their accounts happen through transfers from the parents' accounts, they can still monitor their spending. Parents also get mail/SMS alerts on the account transactions.

These added services help instil a sense of discipline and responsibility in money matters. Periodical personalised account statement, for example shows the child his spending habits. Also, limits on the ATM withdrawals and debit card usage curb their temptation for impulsive purchases.

The Zing debit card, from ING Vysya, for instance lets parents decide and set monthly limits on ATM withdrawals, and also for shopping at points of sales (POS). There are three options of spend limits ranging from Rs 500 to Rs 3,000 for ATMs and Rs 1,000 to Rs 5,000 at POS(shopping).

Moreover, these accounts are not only designed to teach children the habit of saving, but also the habit of investment. ICICI's Young Star account offers the facility to transfer funds to a recurring deposit for a fixed period. With savings bank account interest rates at 4 per cent, the child would learn that a fixed amount set aside every month for the recurring deposit would fetch much higher returns and multiply his money further.

This would also make the child think twice before spending, as an approaching auto debit trigger for the RD would require him to keep funds in his account.

Similarly, HDFC Bank, offers ‘sweep' facility to its ‘Kid's Advantage Account'. Once the balance reaches/exceeds Rs 35,000, the amount in excess of Rs 25,000 will automatically be transferred into a Fixed Deposit for 1year and1day, in the child's name. HSBC, Citibank and HDFC Bank also introduce the world of stock markets to children by enabling investments into mutual fund SIPs from the account. An SIP begun early and continued for the long-term could help in creating a corpus for the child's higher education or other needs.

While there are many benefits that flow from making your kids financially independent, there are few things which you need to consider.

Your call

One, since it is in any case your money and you would be accompanying your child when he does most of his banking transactions, would you rather spend out of your pocket?

Two, liberal spending limits that almost all banks offer also seem to bother. Would you give a debit card to your 10-year old with a daily spending or ATM withdrawal limit of Rs 1,000/Rs 2,500/Rs 5,000? Not unless you are a multi-millionaire or you want your children to become spend thrifts!

Three, comes the cost associated with these accounts. Non-maintenance of AQB in the HDFC Bank kids' savings account, for example, would cost Rs 300.

Now, not many of us would give this amount even as pocket money to our children! Four, would children , be careful with their debit card and internet pins and passwords or would it give room for misuse?

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