Using Fixed Deposits For Kids

At a time when the baby is born, the first thing which strikes a parent’s mind is how they will manage their education fees and what they can do to give them a good lifestyle. Days are gone when school fees and college fees are nominal. Building a secure future for your child is a lifetime investment and the investment will be useful if it is done timely. To build a secured future for your little ones, fixed deposits can be a preferred option. Investing in fixed deposits will give you guaranteed returns and save the amount for a fixed period. Children’s fixed deposits are opened by parents or guardians of children and they will receive the earning from the same when they turn 18 years or above or when the fixed deposit get matured, whichever comes first.

What is a fixed deposit?

Fixed deposit is a great way to invest your money and see it grow. Fixed deposits enable an individual to deposit a lump sum amount with a bank or financial institutions and he/she can select the tenure for which they want to invest the money. In return, individuals earn an interest rate once a pre-decided tenure is completed. Investors get guaranteed returns on their deposit, they can choose to get their interest periodically or at maturity. Generally, it is not allowed to withdraw the FD before completion of the tenure but some lenders may allow by charging a penalty for the same.

Why choose a fixed deposit scheme for children?

The fixed deposit account can be opened for a child when he/she is one year old. You can invest even a very low amount and the maximum is dependent upon you. Opening the account early will give parents more time to save up for their child’s future. There is an added benefit of a fixed deposit scheme for children as the interest earned is deductible from income tax. Fixed deposits for children will not only help protect a child’s future but it can also be used in case of emergency.

Tax implication on fixed deposits for children

The deposited amount is also taxable income. Parents who have opened the FD account for their children then claim tax deductions up to Rs 1,50,000 under section 80C of the Income Tax Act 1961. For example, if the fixed deposit interest rate is 8% and your tax bracket is 30%, then the effective rate of interest is only 5.6 percent after taxes.

How do fixed deposits for children work?

The fixed deposit account for children has to be opened by a parent or legal guardian of a child. He/she needs to submit his/her identity proof, address proof and all other documents required.
There cannot be a nominee or joint holder for this type of account.
Until a child turns 18 years, the sole responsibility of the fixed deposit account is his/her parent or a legal guardian.
A child will receive all the earnings made from fixed deposits when he/she is 18 and after that, he/she becomes the sole owner of the account.

Which banks offer such schemes?

There are very few banks in India who offer the facility of fixed deposits for children. Here are the banks who have fixed deposit schemes for minors:-

Canara Bank
HDFC Bank
Bank of India

Other fixed deposit schemes for children available in India:-

PNB Balika Shiksha Scheme

PNB offers a fixed deposit scheme which is called PNB Balika Shiksha Scheme. All the girl child who have passed the 8th standard are applicable for this scheme. Girls who open this type of FD account can withdraw the money only after the age of 18 years. It is worth mentioning that a girl child who studies in a private school or central government school cannot avail this scheme.

Allahabad Bank Sishu Mangal Deposit Scheme

This scheme has been offered in India for the longest time, this scheme was started for the welfare of children in 1988. A child who is a citizen of India is eligible for this scheme, but a child should be aged between 1-15 years. All the earning made from the saving scheme will be paid on the maturity of the plan.

Bottom line: Investing in a fixed deposit account is a good option when your child is born. It will ensure a good lifestyle as well as take care of the expenses like school fees, college fees or mariage. If the investment is done timely then it will surely earn the interest which will fulfill all the needs of the future. For example: If you invest Rs 1,00,000 for 20 years at an interest rate of 8% then at the maturity you will get Rs 4,66,000, the total interest earned is Rs 3,66,000. To keep your child protected, invest in the fixed deposit today.