Make Your Kid Money Savvy — Open Kid’s Savings Account

If you want to teach your kid about money management there is no better way than giving them a practical experience. Thanks to the Reserve Bank of India, you can introduce your kids to the financial world as soon as they attain 10 years of age by opening a kid’s savings account. Last year in May, the Reserve Bank of India came out with guidelines on such accounts and many banks such as ICICI Bank, SBI, and Federal Bank have already launched kid’s savings account.

Now, you must be wondering how these accounts are different from the saving accounts you opened for your kids acting as their guardian. The difference lies in the fact that these accounts can be operated independently by the kid without your supervision. With these accounts your kid can sign cheques independently, make online transactions and use debit cards etc. Handling the bank account independently will give your kid a sense of responsibility.

So, all you need to do is take your kid to the bank branch with required documents for Know Your Customer (KYC) process and set them on the path of banking.

Let’s go in detail to learn about the features offered by these accounts

1. Net & mobile banking: Now your kid can make online transactions such as transfer funds to other bank accounts and make purchases, pay bills using the internet banking facility. However, some banks provide view only facility (your kid can just see the details of transactions online but can’t do any transaction), so check with the bank before opening the account. Apart from this, there are services like sms alerts, email alerts and monthly e-statements. You can ask your kids to check their monthly e-statement regularly to keep track of their expenses.

2. Interest rates: All banks are offering an interest rate of 4% per annum on these accounts and they also provide the facility of creating a fixed deposit or recurring deposits under these accounts. So, your kids will learn that if they save their pocket money, they can earn interest on it and let it grow over time.

3. Minimum balance requirement: It varies from nil to Rs 2,500 monthly depending on the bank you are choosing. This will help your kid understand the meaning of maintaining quarterly balance in the account and also tell them about the charges that will be levied if they fail to do so. This will help in inculcating financial discipline in them and learning how to live within the means.

4. ATM transactions: The charges will be same as applicable on a regular savings account. The first five transactions in a month will be free while post that Rs 20 per cash withdrawal and Rs 8.50 (exclusive of service tax) for non-financial transaction will be levied.

5. Debit card: After you open the account, the bank will provide the basic kit containing debit card, cheque book and pass book. So, your kid can now swipe his debit card to pay the shopping bills. But you don’t have to worry about overspending by your kid as these cards come with per day withdrawal limit which ranges between Rs 2,500 to Rs 5,000, depending on the bank you choose.

Should you go for it?

It will depend on how willing you are to give your kids the authority to handle their finances on their own. However, there are transaction limits to keep tab on the amount your kid can spend; some parents may not be sure about giving their kid full control of their finances at this age. Such parents can open the traditional minor account with mandatory guardian requirement.

But if you feel that your kid is mature enough, these accounts can be a good option to make them learn about money management at early stage in life.