The Indian Contract Act that governs transactions for a consideration between two entities holds transactions with a minor as null and void. Under the law, transactions with anyone aged less than 18 are not valid. Therefore, while minor can enjoy the benefits of a bank account, they cannot enter third-party transactions on their own. The bank will also not allow the account to be overdrawn, as that amounts to a lending transaction.
How a Bank Account benefits your child?
Apart from familiarizing them with the banking procedures, it can instill the saving habit and boost confidence in kids.
Letting children handle their own accounts would not only familiarize them with banking procedures, but also instill confidence in them. These digital natives are well-versed in Internet technologies and, with a little handholding, will be able to understand the intricacies of the financial world.
The lowering of the minimum age for transactions could lead to a flurry of new banking products aimed at children. ING Vysya Bank is already making the necessary changes in its ING Zing savings account for children aged 14-17 years. The bank offers debit cards, cheque books and the option to access the account through Internet, mobile and phone banking.
First, don’t put too much money in the child’s account. Just a bare minimum is fine. It makes sense to also set limits on the daily transaction value. More importantly, educate your child about the modus operandi of scamsters who indulge in phishing.
This is especially important for children who are active on social media sites. Tell your child not to disclose her Net banking password and debit card PIN to anyone, even if the person claims to be from the bank. The child should also be warned against scams that take place at ATMs.
There is also the risk of the child overspending on gadgets and online shopping. But some experts say it is best to let the child make small money mistakes and learn from them.
Tax advantage for parents there is a fringe benefit attached to opening a bank account for your child. Investments made in the name of a minor child are liable to clubbing provisions. The income from the investment will be treated as the income of the parent who earns more and taxed accordingly.
However, there is a small exemption of Rs 1,500 available per child. So even if your child has a recurring deposit of Rs1,000 per month, the interest from the investment will not be taxable.
How does a Minor Savings Account work?
Before knowing about the top savings account for Minors in India, it is important to have a brief knowledge of them. Banks usually offer two kinds of Minor Savings Accounts – One for children below 10 years of age and another for children between 10 to 18 years of age. The account for below 10 years of age can only be operated jointly with a parent or guardian whereas the latter can be operated individually by the child itself.
However, there is one thing that you need to remember that a minor savings account becomes operative as soon as the child becomes an adult i.e. 18 years old. After completing the simple paperwork, the account will be converted into a regular savings account and parents can no longer operate the account. Several top banks offer exclusive Savings Account for Minors, such as State Bank of India (SBI), HDFC Bank, ICICI Bank, Kotak Bank, Union Bank of India, IDFC First Bank, etc.
7 Things to consider Before Opening Kid’s Savings Account
1. 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.
2. 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).
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
Best Savings Account for Minors
- SBI Savings Account for Minors
- HDFC Bank Kids Advantage Account
- ICICI Bank Young Stars Account: Savings Account for Minors
- Bank of Baroda Kids Bank Account
- Axis Bank Future Stars Savings Account
- PNB Junior Savings Fund Account
- Kotak Mahindra My Junior Account