Investing in Your Child’s Tomorrow: Fixed Deposits for Minors

As a parent, you always want the best for your children. One way to secure their financial future is by opening a fixed deposit (FD) account in their name. Fixed deposits for minors offer a stable, low-risk investment option that can help you plan for their long-term expenses, such as higher education or marriage.

Why Choose Fixed Deposits for Your Child?

When it comes to investing for your child’s future, fixed deposits stand out as a reliable choice. Here are some key benefits of fixed deposits for minors:

• Guaranteed Returns: Unlike market-linked investments, FDs provide assured returns at a predetermined interest rate. You can calculate the exact maturity amount using an FD interest calculator.
• Low Risk: FDs carry minimal risk compared to other investment options, ensuring the safety of your child’s funds.
• Flexible Tenures: You can choose an FD tenure that aligns with your child’s milestones, such as their 18th birthday or college admission.
• Inculcate Saving Habit: Opening an FD in your child’s name helps them understand the importance of saving from a young age.

Eligibility Criteria for Minor Fixed Deposits

To open an FD account for a minor, the following eligibility criteria must be met:

• The child should be below 18 years of age.
• The parent or legal guardian can open the account on behalf of the minor.
• Some banks may require the minor to be at least 1 year old.

Documents Required for Opening a Minor FD Account

You’ll need to submit the following documents to open a minor FD account:

Step-by-Step Process to Open a Minor FD Account

Follow these simple steps for a minor FD account process:

1. Choose a Bank or NBFC: Compare interest rates and tenures offered by different banks and non-banking financial companies (NBFCs) to find the best option for your child’s FD.
2. Fill the Application Form: Obtain the minor FD account opening form from the bank’s website or nearest branch. Fill in the required details accurately.
3. Submit Documents: Attach the necessary documents (birth certificate, ID proof, address proof, photographs) with the application form.
4. Make the Initial Deposit: Decide on the amount you want to invest and the tenure. The minimum deposit amount varies across banks but usually starts from ₹1,000.
5. Nominee Declaration: As the account guardian, you’ll have to declare a nominee who will be entitled to the funds in case of an unfortunate event.
6. Receive FD Receipt: Once your application is processed, the bank will issue an FD receipt confirming your minor’s investment.

Here’s an example of how the FD investment for your child would grow:

Suppose you invest ₹50,000 in your 5-year-old daughter’s FD for a tenure of 10 years at an interest rate of 6.5% per annum. The maturity amount when she turns 15 would be:

Maturity Amount = Principal × (1 + Interest Rate)^Tenure
= ₹50,000 × (1 + 0.065)¹⁰
= ₹50,000 × 1.8868
= ₹94,340

By the time your daughter is 15, her FD investment would have nearly doubled!

Taxation on Minor Fixed Deposits

As per income tax rules, the interest earned on a minor’s FD is clubbed with the income of the parent with the higher income. However, if the interest income from all sources for the child is less than ₹1,500 per year, it is exempted from tax.

Premature Withdrawal of Minor Fixed Deposits

Most banks allow premature withdrawal of minor FDs, subject to certain conditions:

• The guardian can withdraw the deposit before maturity only in case of financial emergencies.
• Some banks may require the minor to be present at the time of premature withdrawal.
• Premature withdrawal usually attracts a penalty, which varies across banks.

It’s advisable to withdraw a minor’s FD only as a last resort, as it defeats the purpose of long-term wealth creation for your child.

Using Minor FD as Collateral for Loans

Did you know that you can take a loan against your child’s FD? Banks allow guardians to avail loans up to 90% of the FD amount. This can be useful in case of financial emergencies without having to break the FD.

For instance, let’s say your child’s education fee is due, and you’re falling short of funds. Instead of withdrawing the FD prematurely, you can take a loan against it. The FD continues to earn interest, and you can repay the loan in easy EMIs.

Airtel Finance offers attractive fixed deposit schemes for minors with competitive interest rates and flexible tenures. You can easily compare different FD options using their FD interest calculator and make an informed decision.

With our services, opening a minor FD account is quick and hassle-free. You can also manage your FD investments on the go using the Airtel Thanks app. So, start investing in your child’s tomorrow with Airtel Finance today!

FAQs

1. Can I open a fixed deposit account for my newborn child?
   Yes, you can open an FD account for your newborn child. Most banks allow parents to open minor FDs for children as young as 1 day old.
2. How long can I open an FD for my minor child?
   You can open an FD for your minor child for a tenure ranging from 7 days to 10 years. Choose a tenure that aligns with your child’s future financial needs.
3. Can I open a joint FD account with my minor child?
   No, you cannot open a joint FD account with your minor child. The FD account should be opened in the name of the minor, with the parent or guardian as the account operator.
4. What happens to the minor’s FD account when the child turns 18?
   When the minor turns 18, the FD account is automatically converted into a regular FD account in the child’s name. The child can then operate the account independently.
5. Can I make partial withdrawals from my child’s FD account?
   No, partial withdrawals are not allowed in minor FD accounts. You can only withdraw the entire deposit amount prematurely, subject to the bank’s terms and conditions.