Fixed Deposits (FDs) are a popular investment option, providing a dependable return on investment. With the capability of earning interest at a reliable rate, FDs offer a stable way to build your savings over time. Parents or guardians can open fixed deposits for minors in the name of their kids and take responsibility for these accounts. This guide will explore the process of opening a fixed deposit account for minors, the eligibility criteria, and the interest rates associated with such accounts.

What is a Fixed Deposit for Minors?

A fixed deposit for minors is an investment option that allows parents or guardians to invest money on behalf of their child. The funds are locked in for a specified period, during which they earn interest at a fixed rate. This option is particularly beneficial for planning future expenses like education or weddings.

Interest Rates on FD for Minors

The interest rate for a fixed deposit for minors is similar to regular FDs, but some small variations are offered by financial institutions based on tenure, deposit amount, and specific schemes. Now, let us break down the factors controlling the interest rates on FD for minors:

• Deposit Duration

The tenure of the FD account for minors influences the rate of interest. Generally, the longer the tenure, the higher the rates. Conversely, the shorter the tenure, the lower the interest rate.

The tenure for FD for minors can range from a few days to years. This allows parents the freedom to decide on any period that best suits their child's future savings requirements.

• Financial Institution Policies

Every bank or NBFC has in-house policies for interest rate fixation. Although most of them have similar interest rates for both regular and minor FDs, a few may offer special rates against deposits in kids' names to encourage savings. Financial institutions sometimes provide minor interest rate bonuses through promotions or special schemes.

• Compounding Frequency

The compounding frequency of the interest rate, in terms of daily, quarterly, or annual, also affects the final returns on an FD for minor kids. More frequent compounding generates more effective returns during the deposit period.

• Deposit Amount

Sometimes, the amount deposited in a minor's FD determines the interest rate. In this regard, some banks and NBFCs offer tiered interest, meaning that higher deposits yield better rates. However, some financial institutions maintain the same interest rate structure irrespective of the deposit amount for minors and make it easy for parents or guardians to invest in their child's future.

• Special Schemes for Minors

Many financial institutions devise schemes specially created for minors that offer more incentives. These may include higher rates of interest or bonuses that add further growth to the FD for minor kids, especially when the term is extended.

Periodic Vs. Cumulative Interest

Minor FDs typically offer two plans for the payout of interest:

• Periodic Interest Payouts: This is a type of policy that allows interest to be credited to the account of the guardian at periodic intervals, which may typically be monthly, quarterly, or annually. This option will help you if you want to use the interest amount for the meeting expenses, while the principal amount remains intact.
• Compound Interest: The interest gained is compounded with the deposit and re-invested into the FD. It keeps accruing until the deposit's maturity date. At the end of the tenure, the amount of principal and compound interest can be withdrawn. This typically makes for a viable investment opportunity for long-term planning with children, as it goes through maximum multiplication due to the compounding process.

Eligibility Criteria for Fixed Deposit for Minors

So,  who can open an FD for minors? This type of fixed deposits can be created for any person less than 18 years of age. A few financial institutions offer plans only for infants or toddlers, and some have an opening of a fixed deposit account for minors at any point in time before the child attains legal adulthood.

The minor's guardian remains responsible for managing the FD account until the child reaches legal age. Financial institutions recognise two types of guardians when it comes to opening an FD account for minors.

• Natural Guardian: This word generally refers to the minor's parents. Both parents are natural guardians and can open an FD in the minor's name.
• Legal Guardian: If the minor is under the charge of a court-appointed guardian, the guardian can also open and administer an FD for the minor. Legal evidence of guardianship has to be presented to the financial institution in this case.

All financial matters related to the FD are, technically, operated by the guardian, though the FD might be in the name of the child. When the account holder attains the age of 18, the FD can either be transferred to their name or closed as per the terms and conditions of the deposit.

How to Open a Fixed Deposit Account for Minors

Opening a fixed deposit account for minors involves several straightforward steps:

• Choose a Financial Institution: Select a bank or financial institution that offers fixed deposits for minors.
• Obtain Application Form: Visit the branch or website to download the application form.
• Fill in Details: Provide accurate information about both the minor and the guardian.
• Submit Documents: Attach the required documents along with the completed application form.
• Initial Deposit: Decide on the initial deposit amount and choose the tenure.
• Receive Confirmation: Once verified, the financial institution will issue an FD receipt confirming your investment.

Conclusion

Investing in fixed deposits for minors is an excellent way to secure their financial future while instilling good savings habits early on. With reliable returns, competitive interest rates compared to savings accounts, and low-risk factors, FDs serve as a dependable investment choice for parents looking to plan for their children's significant life milestones.

FAQs

1. What is the FD limit for minor accounts?

The FD limit will vary across banks and NBFCs. Usually, it starts from as low as ₹1,000, and the upper limit depends on the respective financial institution's terms and conditions.

2. How do I open an FD for a minor?

The minor FD is relatively simple to open and can be done both offline and online. Here is a step-by-step process:

• Select a Financial Institution: For your financial purpose, choose a bank or NBFC offering a minor FD scheme. Compare interest rates, tenure options, and other available add-on features.
• Submit the Application: Complete an application form either online or physically at the financial institution. Ensure that you provide the correct details about the minor and the guardian.
• Provide Required Documents: Attach supporting documents, including the minor's birth certificate and the guardian's ID and address proof.
• Deposit Amount: Select the sum to be deposited and its tenure, then deposit it. Check the compounding and payout options.

Once you have completed all of these steps, the bank or NBFC will issue you a receipt or certificate showing details of the FD.

3. Can FD for minors be closed before maturity?

Yes, an FD for minors can be withdrawn before maturity. However, banks and NBFCs may penalise the account holder for withdrawing the funds before maturity. The penalty is usually a part of the total interest accrued on the deposit. Certain financial institutions will permit partial withdrawals under specific conditions without any penalties for that.

4. Can I open a fixed deposit account for minors for a newborn?

An FD for minors can be opened for anyone below the age of 18 years.