How to Set Up a Fixed Deposit Account for a Minor
November 04, 2024
Safeguard your child's future with Fixed Deposits (FDs). Fixed Deposits offer stable and assured returns, ensuring consistent growth. Unlike market-linked instruments like stocks or mutual funds, FD interest rates remain fixed throughout the tenure, undeterred by market fluctuations.
In this blog, we have simplified how to set up an FD for your child.
Benefits of Investing in a Fixed Deposit Plan for Your Child
Investing in minor savings plans comes with several advantages. Let's take a look at some of them:
- Financial Security: A fixed deposit plan ensures financial security for your child's future milestones, such as higher education or marriage.
- Higher Interest Rates: FDs offer higher interest rates compared to Savings Accounts. Also, the interest is calculated via the compound interest method, ensuring long-term growth. For example, if you make a fixed deposit of ₹50,000 for five years at 7.20% p.a. for your minor child, you will get ₹71,437 at maturity.
- Overdraft Facilities: During an emergency, you can opt for overdraft against your FD. The interest is charged only on the utilised amount. You can repay the amount as per your convenience, before the maturity date.
- Flexible Tenure: FD plans typically come with flexible tenure options, allowing you to choose the duration that suits your child's needs. The tenure generally ranges from 7 days to 10 years.
Setting Up a Fixed Deposit Account for a Minor
Here's how you can open a Digital Fixed Deposit with Ujjivan SFB:
- Step 01: Enter your mobile number, PAN and Aadhaar
- Step 02: Enter Deposit details and complete the payment
- Step 03: Provide personal details
- Step 04: Complete video KYC (08:00 AM To 08:00 PM)
- Step 05: Receive FD receipt and maximize your returns!
Documents Required
To open a Digital Fixed Deposit, you would need the following documents:
- PAN card
- Aadhar card
Please ensure your mobile is linked to Aadhar to experience a seamless account opening journey.
Maximising Returns and Planning for Your Child's Future
When setting up a fixed deposit account for a minor, it's essential to consider long-term planning. Here are some tips to help you maximise returns and plan for their future:
- Start early: The earlier you start investing in a fixed deposit account for your child, the more time their money has to grow through compounding interest.
- Regular monitoring and reinvestment: Keep track of maturity dates and reinvest the funds to continue earning compound interest.
- Tax implications: Understand how the interest earned on your child's FD will be taxed and plan your investments accordingly.
- Opt for cumulative fixed deposits: Cumulative FDs generally offer higher interest rates 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 benefit from varying interest rates over time.
By following these strategies, you can make the most of your child's fixed deposit account and ensure a secure financial future for them.
Final Thoughts
Setting up a fixed deposit account for your minor child is an excellent way to secure their financial future. Take the necessary steps to open a fixed deposit account for your child today and start building their financial security.
Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.
FAQs
1. Can I open a fixed deposit account for my minor child?
Yes, as a parent or guardian, you can open a fixed deposit account in your minor child's name.
2. Do I need to have an existing account with the bank to open a fixed deposit account for my child?
With Ujjivan SFB, you can open a standalone FD wi9thout opening a Savings Account. However, Ujjivan offers high-interest Minor Savings Account, which could help you save more for your child.
3. Are the interest rates on child FDs higher than regular FDs?
The interest rates are same as regular FDs.
4. Can I withdraw money from my child's fixed deposit account in case of emergencies?
Premature withdrawal is allowed for callable FDs (fixed deposits with no lock-in period). However, it is advisable to check the terms and conditions of the specific scheme before opting for early withdrawal.
5. Is the interest earned on my child's fixed deposit taxable?
Yes, the interest earned on your child's fixed deposit is taxable. A minimum of 10% TDS is imposed on the interest income if the interest earned exceeds ₹40,000 (₹50,000) for senior citizens.
6. Can I choose the tenure for my child's fixed deposit?
You can select any tenure between 7 days and 10 years based on your goals.
7. Is it better to opt for a cumulative or non-cumulative FD for my child?
It depends on your financial goals. Cumulative FDs offer higher returns owing to the compounding effect. interest rates as the payout at maturity is compounded annually. Non-cumulative FDs provide regular interest payouts, which can be beneficial if you require periodic income.
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