Parents often opt for Fixed Deposit schemes for their children as it provides a safe way to invest money while teaching them the importance of saving from a young age. These schemes offer a secure financial foundation, ensuring a stable future for the children. By instilling the habit of saving early on, parents set their children on the path towards financial security and independence later in life.
What are Fixed Deposit schemes for children?
Fixed Deposit schemes for children are investment plans that allow parents or guardians to deposit a lump sum in their child's name. These schemes come with a fixed tenure, and the money accrues interest at a predetermined rate.
Unlike Savings Accounts, children's FDs offer higher interest rates, making them an ideal choice for long-term savings. The principal amount, along with the interest earned is available on maturity, providing a substantial financial corpus for the child. This ensures a reliable source of funds for major life events such as higher education or wedding.
Some schemes also allow for periodic interest payouts, which can be a source of regular income for the child's ongoing needs.
Benefits of investing in a Fixed Deposit plan for the child
Investing in a Fixed Deposit plan for a child offers numerous benefits.
First, it ensures financial security and builds a corpus for the child’s various milestones. These FDs usually offer higher interest rates compared to adult FDs, maximising potential returns.
Additionally, the interest earned is taxable under the child's name, often resulting in lower taxation due to the child's likely lower income bracket. Some schemes also provide added benefits like loan facilities against the FD, flexibility in terms of tenure, and premature withdrawal options for emergencies, making them a versatile financial tool for planning your child’s future.
Creating Fixed Deposits for children
To pave the way for your child’s financial security, a Fixed Deposit can be initiated until they reach 18 years by following these steps:
Step 1: Visit your bank's nearest branch or log in to your net banking portal.
Step 2: Look for the 'Fixed Deposit' option and select it.
Step 3: You'll be prompted to input the necessary information of both your child and yourself in the designated fields.
Step 4: Upload all documents, which typically include ID proofs and photographs, then proceed to complete the KYC formalities.
Step 5: After filling out the application, submit it. The bank or NBFC will then verify the details provided.
Step 6: Following successful verification, your child's new Fixed Deposit will be active.
Documents required
To open an FD for a minor, certain documents of both the parent or guardian and the kid are needed:
- Minor’s birth certificate: To confirm the age of the young account holder.
- Parent/guardian PAN card: For financial and identity verification purposes.
- Identity verification: This can include a Voter ID, a Driving License, a Passport photocopy, or an Aadhar Card belonging to the parent or guardian.
- Proof of residence: A document to verify the current address of the parent or guardian.
Also Read: Know the different types of Fixed Deposits
Maximising returns and planning for children's future
Securing your child's financial future necessitates strategic planning and smart investments. Some tips to help you achieve the same include:
- Start early: The earlier you start, the more your money will grow, thanks to the power of compound interest.
- Regularly monitor and reinvest: Monitor the maturity of FDs and reinvest to keep compound interest working.
- Consider tax implications: Understand how the interest from the FD will be taxed and plan investments accordingly.
- Opt for cumulative FDs: These generally offer higher interest as the payout at maturity is compounded annually.
- Automatic renewal: Enable automatic renewal of FDs to avoid missing out on continuous interest accumulation.
- Use laddering strategy: Stagger the maturity dates of multiple FDs to have regular intervals of liquidity and to benefit from varying interest rates over time.
Axis Bank's Fixed Deposit offers a secure route for growing your savings. You can open an FD with as low as ₹5,000 and a tenure that ranges from a week to a decade. The convenience of online setup, coupled with competitive interest rates and the ease of managing funds, makes it an ideal financial tool for both novice and seasoned savers.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
