FD Schemes for Child

A fixed deposit account is the best way of investing your savings in a bank. Fixed deposits help you increase your savings with a rate of interest, and upon maturity, you can easily withdraw your investment. These have less risk and come with guaranteed returns. This makes it an ideal investment plan for every individual. There are different types of fixed deposits offered by multiple banks. One of the most popular plans among parents is a fixed deposit scheme for children. Such an FD allows the parent/guardian to open a fixed deposit account on behalf of the child. The child will receive the amount from an FD at the age of 18 years or when the FD reaches maturity.  The parent is in charge of the account.

Do you want to invest in FD schemes for your Child? This article offers you a complete guide on how, when, and which FD you should invest in to secure your child's future. 

Key Features of FD Schemes for Child 

• Created for Minors: Child FD schemes are crafted for minors, typically below the age of 18. Parents or legal guardians usually manage the account on behalf of the child until they reach maturity age.
• Tenure Options: These schemes offer various tenure options, allowing parents to align the investment with the child's future financial needs. Common tenures range from one year to fifteen years.
• Interest Rates: Interest rates for child FDs are competitive, ensuring that the investment grows steadily over the chosen time. Some banks or financial institutions may provide slightly higher rates compared to regular FDs to encourage long-term savings for children.
• Flexibility in Deposit Amount:  Parents or guardians can choose the deposit amount based on their financial capacity. There might be flexibility regarding the frequency of deposits, allowing for periodic contributions.
• Joint or Single Holder: Parents can open the FD in the child's name with themselves as joint holders, ensuring they have control over the investment until the child reaches maturity age. Alternatively, it can be opened in the child's name.
• Premature Withdrawal: Child FDs often allow premature withdrawal, but this might be subject to certain conditions. There could be penalties or a reduction in interest rates for early withdrawals.

Types of Child Fixed Deposit Plans

PNB Balika Shiksha Scheme

PNB bank offers this fixed deposit scheme. It can only be opened on behalf of a girl child. After the eighth standard of secondary education, all female children are eligible for this scheme, and the deposit is withdrawn when the girl reaches the age of 18. Furthermore, this scheme does not apply to students who attend a private, central government school.

Guardian Associated Scheme

Only a few banks provide special fixed deposit programs designed specifically for youngsters. However, many banks will allow youngsters to open an FD account if they have a guardian who would manage the account.

In these schemes, the guardian opens the fixed deposit account on behalf of the minor, and the minor can control the account after they reach the age of maturity. Minors who open a fixed deposit account with a bank are eligible for a discount.

The banks that offer FD Schemes for Children are:

• HDFC Bank
• Canara Bank
• Indian bank.

Allahabad Bank Sishu Mangal 

This is one of the oldest schemes, established in 1988, for the welfare of children. Any young student between the ages of one and fifteen who is an Indian citizen is eligible for this scheme. The interest is paid on the amount until the plan matures.

Benefits of FD Schemes for Child 

• Financial Security: The primary objective of a child FD is to provide financial security for the child's future needs, such as education, higher studies, or other significant life events.
• Steady Growth:  The fixed interest rates guarantee steady growth of the investment, protecting it from market fluctuations. This reliability is especially important when saving for long-term goals.
• Inculcating Savings Discipline:  Opening an FD for a child ensures the importance of savings and financial discipline from a young age. As they experience the growth of their investment, it contributes to developing responsible financial habits.
• Education Funding: With the increasing costs of education, a child FD can serve as a  fund for the child's future educational expenses. The maturity amount can be used to cover tuition fees, books, and other educational costs.
• Flexible Contribution: Many child FD schemes allow parents or guardians to make periodic contributions, offering flexibility in aligning savings with their financial goals and capabilities.
• Tax Benefits:  Some child FDs may have tax benefits under Section 80C of the Income Tax Act. This can provide additional incentives for parents to invest in these schemes.

Conditions for FD Schemes for Child 

• Premature Withdrawal Conditions: Parents should carefully review the terms and conditions related to premature withdrawal. Understanding penalties or interest rate reductions is crucial to making informed decisions.
• Documentation Requirements: Opening a child FD may require specific documentation, including the child's birth certificate, identity proof, and the parent's or guardian's KYC documents. Ensuring all necessary paperwork is essential.
• Interest Payout Options: Different FDs offer varied interest payout options – monthly, quarterly, annually, or at maturity. Parents should choose an option that aligns with their financial planning and liquidity needs.
• Comparison of Interest Rates: Before selecting a specific child FD scheme, it's essential to compare interest rates offered by different banks or financial institutions. Even a slight variance in rates can have a significant impact on the maturity amount.
• Maturity Instructions: Parents should provide clear instructions regarding the maturity amount – whether it should be reinvested, transferred to another account, or paid out. This decision should align with the child's financial goals at that point.