By Muthukumar K
[ET Intelligence Group]

Some banks have started kids’ accounts that allow children to conduct their own transactions

Today, several banks offer kids’ accounts that allow children to conduct banking transactions by themselves, at the same time letting parents keep tabs on their finances. These accounts are a good way of introducing children to the world of banking and teaching them a little about managing personal finances.

The kid’s account is basically a savings/fixed/recurring account, linked to the account of the parent. There are certain advantages in opening a kid’s account over the traditional minor account. First, it gives your child the power to withdraw money, within pre-specified limits, through an ATM/debit card. For this, the bank issues a separate ATM/debit card in the name of the child. Also, it allows parents to control their overall finances by setting a daily limit on withdrawals.

For instance, under HDFC Bank Kid’s Account, there is a transaction cap of Rs 2,500 per day (Rs 1,500 at ATMs and Rs 1,000 at merchant outlets). In addition, banks send monthly or quarterly bank statements to the parents to apprise them of their child’s transactions.

The account can be used for other purposes as well. Say, you want to save Rs 2 lakhs in two years for your child’s education. For this, you could give standing instructions to transfer a certain amount every month from your account to your child’s account.

Banks also provide a facility to convert the account into a savings-cum-FD account, where your money starts earning higher rate of return after crossing a particular threshold. In the ICICI Bank Young Stars Scheme, for example, after the bank balance crosses Rs 10,000, the excess amount automatically goes into FDs in multiples of Rs 5,000.

Then, there are other investment options. Citibank Junior offers three portfolio options — conservative, balanced and aggressive — that invest in mutual funds based on your risk appetite. In contrast, HDFC Bank and ICICI Bank offer SIP (systematic investment plan) for investments in mutual funds from the kid’s account. Additionally, there are trimmings like insurance cover for the child’s education and health, and personal accident cover for the parent.

Which account you opt for will depend on the reason you want to open the account. If you primarily want savings for your child, there are two things you need to ensure. First, the minimum balance for the account shouldn’t be too high as that would limit its earning power.

While HDFC Bank Kid’s Account gives a zero balance facility on opening a FD of Rs 25,000, ICICI Young Stars requires you to maintain a minimum quarterly balance of Rs 500. Citibank Junior account, which is linked to the parent’s account, requires a minimum balance of Rs 1,00,000. The parent must also ensure that the bank offers investment options, say SIP, by way of investments in other avenues like mutual funds and government bonds.

If you’re opening a kid’s account to let your child get a hang of finances, choosing a non-investment oriented account could be a better option. In such accounts, there is no obligation of regular investments, while the child still reaps the benefits of the kid’s account.

These accounts are also useful in sending money to kids who reside away from home, minus the hassles of demand drafts, which has a cost element attached, by transferring money from your account to your kid’s account. This could be done either through online transfers or by phone banking.

ICICI Bank also gives limited online shopping powers to children above 10 years of age. So, gone are the days when the piggy bank was used to inculcate savings habit among the young. Thanks to technology, today’s young ‘uns are happier holding ATM cards and clicking a mouse to transact through the internet.

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