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Should your child have a real bank account?

By Kamiya Jani,
August 28, 2006 09:28 IST
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Either watch the saving grow as your child grows or watch the savings disappear as your child may just splurge it up.

From the day a child is born, parents fear for his/her well-being, safety, happiness and future.

Securing the child's future is one of the greatest concerns. You can make it easier by opening a savings account for your kid in the same bank as yours. But how beneficial are these accounts for you and your kid?

Most of the leading banks like ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank and so on have very interesting schemes for your children. You can open your kid's account in a bank only if you have an account in the same bank.

Citibank offers a 'Junior Account' for kids, where the minimum deposit of Rs 5,000 is mandatory and every month, a parent/guardian can transfer a specific amount to the child's account (subject to a minimum of Rs 500) through a standing instruction. The scheme offered by other banks is also more or less the same but probably the minimum deposit may differ.

According to investment advisor Sanjay Matai, saving account for kids is a good idea since it helps the kids to understand the saving patterns, interest rates and so on. "Kids can deposit their monthly pocket money into their savings account and after some point of time, they can utilise this money, the way they want."

With a good number of benefits, saving account for kids also have a few shortcomings. Let us have a look at them.



Your account will be linked to your child's account. You can deposit part of your monthly income into his/her account through standing instruction.

Saving habit

Opening a savings account for your child is surely a good idea. While building up savings for your child's futures, it also inculcates a saving habit in him/her right from childhood.

Investment plans

Banks also allow you to invest the balance of the child's account in mutual funds, debt or equity products, depending on parent's preference, based on their investment goals and risk appetite.

These portfolio options range from debt/fixed income instruments to diversified equity funds.

Banks also tag on benefits, such as insurance, education and accident cover, which will protect your child's future in case you die. Like, free education insurance cover of up to Rs 100,000 for your child with every 'Kids Advantage Account' offered by HDFC Bank. These savings are sure to secure your child's future.

Debit/ATM card

One more common thing, which is observed in these kids account, is the trend of debit/ATM cards. Banks are offering debit cards to kids at the tender age of six or seven. Kids can use these debit cards themselves and do not need their parent's approval. This helps them to become more independent and take their own decisions.

They can also use the money in case of any emergency or for the educational purposes.

Withdrawal limit

There is definitely a certain amount of withdrawal limit attached to kid's debit card. You can be sure that the kid cannot spend more than the withdrawal limit. For example, the withdrawal limit for Citibank 'Junior Account' debit card is Rs 500 per month. This makes sure that the child will not be able to withdraw or spend more than that.

Monitoring spending habits

Getting mobile alerts/customising triggers/signing-up for online statements will help the parents to constantly monitor the child's spending habits. ICICI Bank offers a mobile banking service, which means that whenever any transaction is made on your kid's debit card, the parent/guardian will receive an SMS on their mobile phones. In this way, one can have a check on the child's expenditure. Banks also send quarter/annual statement to the guardian/parent regarding the transactions made in their kids account.


Kid may become spendthrift

Your child having a debit card at the age of six, sounds exciting, but this may also have an other side to it. Since the child has the complete authority over the card and does not need his/her parents approval while using it, there are chances of him misusing the card.

The kid may become spendthrift without even realising what he is doing. This may also lead to arrogance and pride if his friends do not have a debit card like he does.

High withdrawal limit

Keeping in mind the fact, that the kids would be using the card, the withdrawal limit of few debit cards is quite high. Like, ICICI bank offers a debit card with its 'Young Stars Account' that has a withdrawal limit of Rs 2,500 per day. There are chances of him mishandling it. To add to that, the limit is by default and the guardian cannot change.

Quarterly/annual statement

Most of the banks send statement of the transactions made, quarterly or annually, to the parents. So, the parents would just know after three months or in some cases after a year about the withdrawals made by the child. Therefore, it gets difficult to keep a check on their expenditure.

However, these debit cards are voluntary, it depends upon the guardian/parent if he/she wants the child to have one. This has both the sides to it either the kid may become independent or he will become spendthrift. You must keep track of the transactions made from the child's debit card.

Therefore, depending upon your child's nature and habits, you may decide whether does he need a debit card or no. And if yes, which one? Preferably, it should be with a low withdrawal limit.

However, a quarterly or annually account statement of your child's savings account will also be sent to you but also ask for a mobile banking/Internet banking service.

However, there are a few things to be kept in mind if you are planning to open a kid's account. You have to be the parent or legal guardian of the child to open these accounts. While selecting portfolios/funds, make sure that it is based on your investment goals and risk appetite.

For more strategies, click here.

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Kamiya Jani,