Child’s bank account: Too much, too soon?

ABC of money: Shuchita Bhanushali opened a savings bank account for her son, Arnav, to teach him about saving. Photograph by S. Kumar/Mint


Vivina Vishwanathan  Live Mint 18 Sep 2014


While banks see it as an opportunity, parents prefer accounts operated under supervision

Shuchita Bhanushali, a 34-year-old homeopath who works with Smart Minds Tutorials in Mumbai, opened a bank account four years ago for her eight-and-a-half-year-old son, Arnav. “The intention is to inculcate the habit of saving, and to teach about money. And children, too, find it interesting to say, I have a bank account. Meanwhile, my son is happy when he saves, say, Rs.70,” said Bhanushali.

Parents opened bank accounts for their children even when the concept of exclusive children’s account was not there. Nirmala Nair, 60, a retired principal of a school in Mumbai had opened an account for her son Arjun in 1977. “I was introduced to banking after I got married. I wanted my children to know about banking at a very early stage. They never operated the account as minors, but through it I could explain the basics of banking to them,” she said.

Till May this year, a minor could operate a bank account only under a guardian’s supervision. But the Reserve Bank of India (RBI) asked banks to allow minors above the age of 10 to open and operate a savings bank account independently. Some big banks have either launched new accounts or tweaked their savings account products for minors, resulting in two broad categories of minor savings accounts—one that can be opened with the consent of the guardian, and the other, without the consent.

The savings account that can be independently opened and operated by a minor was launched only this month. For instance, State Bank of India (SBI) has launched Pehli Udaan, Federal Bank Ltd has Young Champ Account, and ICICI Bank Ltd has Smart Star Savings Account. A child older than 10 years can independently open such an account.

The accounts that need parent’s consent have been in existence for some years. “The concept of children’s bank accounts has picked up in the past 7-8 years, with parents as joint holders,” said Vishal Narnolia, a banking analyst at SMC Global Securities Ltd. Axis Bank Ltd’s Future Stars Savings Account, ING Vysya Bank Ltd’s Zing Savings Account and SBI’s Pehla Kadam are some products in this category.

What’s on offer

For a savings account that can be opened and operated independently by a child, the child should be above the age of 10, and should be able to sign uniformly. She will be the sole operator of the account. As know-your-customer (KYC) documentation, the child will have to submit a proof of date of birth and KYC of a parent. Some banks also accept a written introduction by the principal on the school’s letterhead, which also has to mention the child’s address.

A child can visit any branch of the bank, and submit the documents. The account will be activated in 1-2 days. The child will get a debit card and a cheque book.

A savings account that requires a guardian’s consent will be opened jointly with the parent’s account. It can be operated jointly by the guardian or parent and the child, or only by the parent. The guardian has to provide her KYC documents along with the proof of the child’s date of birth. The cheque book will be issued to the guardian in the name of the minor.

Generally, the withdrawal and transaction limits are the same for both types of accounts. It normally ranges between Rs.1,000 and Rs.5,000 per day. However, the limit is lower at some banks if the account is opened when the child is below the age of 10 (therefore, the account is opened with a parent’s consent). The minimum balance requirement ranges from Rs.100 to Rs.2,500, and the periodicity can be quarterly or monthly. If the balance is not maintained, some banks charge Rs.100 per month, while others charge Rs.500 for six months. Some public sector banks don’t have a minimum balance requirement. Number of automated teller machine (ATM) transaction limits are the same as a normal bank account, and vary from bank to bank. Other common facilities include debit cards, message alerts and Internet banking facilities. Once the minor turns 18, the account gets converted into a regular account.

To monitor or not

Bankers, parents and financial planners offer different views on savings bank accounts that can be opened and operated independently by a minor. “It is very early for a 10-12-year-old to create an opinion about banking. For a 10-year-old, it is critical that the account is linked to a parent’s as the child doesn’t have an income and the money has to come from the parent’s bank account,” said Rajiv Anand, retail group executive and head-retail banking, Axis Bank. “Through kids’ bank accounts, we are not looking for large balances or selling multiple products but to create a relationship with money. Though some parents come looking for kids’ accounts, it is still a push product,” he added.

Some feel that children are more mature now and can handle money by themselves. “We think our product will inculcate a saving habit, and we can also capture a relationship at an early age,” said B. Sriram, managing director and group executive, national banking, SBI. “We have given a target of opening at least 100 kids’ savings accounts to every branch. We also plan to engage at parent-teacher association meetings,” he added.

Independent or not, this is clearly an opportunity that banks don’t want to miss. “Earlier, we used to give a dictionary with every recurring deposit that was opened in the name of a minor. (But) after Kotak Mahindra Bank launched Kotak Junior, we saw that it got a lot of attention, and we didn’t want to miss the opportunity,” said A. Surendran, retail business head, Federal Bank. “With RBI allowing children above the age of 10 to operate bank accounts independently, we decided to launch our product as well,” he added.

Many parents, however, are not comfortable with an independent account for their children. “I opened a bank account for my child a year ago. But I don’t think it is a good idea to give full control of the account to my child, even when she is 10 or 15 years old. I would be too scared to do that,” said Binoy Cherian, a 38-year-old Mumbai-based independent consultant, whose daughter, Kiyara, is 8 years old. Bhanushali and Nair, too, believe that exposing children to banking is a good idea but with supervision.

“You should introduce your child to banking, but at that age, they may not be mature enough to control money. It could lead to unimaginable repercussions too. When banks approached me to open accounts in my school, I had clearly said that a bank account can’t be opened without the consent of the guardian,” said Nair.

What should you do?

Exposing a child to banking using a formal method is a good approach. “A minor account held jointly is more the parent’s account, since the parent handles most of the transactions. But if a child operates it independently, the child will have more ownership. So, it is a positive move. But banks should be careful about how they engage with children,” said Suresh Sadagopan, a Mumbai-based financial planner.

In the end, the choice is yours. If you are comfortable letting your child learn how to bank on her own, go for it.