In this blog, we thoroughly explore and examine the advantages and details of the Fixed Deposit Scheme For Children. We offer valuable information and advice on how this investment choice can help create a prosperous financial future for your children learn about the possibility of long-term investing and begin safeguarding their aspirations right away.
Build a substantial financial corpus for your child by unlocking the power of fixed deposits. Sign up with Koshex to invest and learn more about such financial solutions.
As a parent, your biggest goal would be to secure your child‘s financial future. One way to go about it is by investing in fixed deposits (FDs). This can come in handy for your child’s higher education, healthcare, and even marriage.
It is ideal to start planning and investing for your child as early as possible, and fixed deposits are a safe investment option that provides stable returns. Moreover, FDs also come with several tax benefits, so investing in fixed deposits helps in growing a large financial corpus for your child.
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What are Fixed Deposits?
Fixed deposits are direct investment schemes that offer guaranteed returns. These schemes are provided by public/private banks and Non-Banking Finance Companies (NBFCs). It allows the investor to earn a fixed interest rate on the principal amount over a predetermined tenure, thus helping in building a corpus for your child.
The parent or guardian of the child manages their fixed deposit accounts initially. Once the child reaches maturity age, they can operate the fixed deposits account on their own. They can also withdraw the amount upon maturity.
Benefits of Investing in Fixed Deposits Schemes Children
Investing in fixed deposits and other schemes is an excellent way of building a corpus for your child’s future. Let’s have a look at some of the benefits it offers:
- Financial Security: Investing early for your child is beneficial in the long term. It builds a corpus for the child’s future which can be later used in education expenses, marriage, healthcare, and other significant life events.
- Safe Investment Option: Fixed deposits are offered by banks and other financial institutions. They provide a fixed rate of return over a predetermined period which helps in securing the child‘s future. The principal investment amount is protected and the interest earned is guaranteed.
- Long-term Financial Planning: Many schemes and fixed deposits let you choose a tenure based on the target corpus required to achieve your child’s future goals. This allows for long-term financial planning. It is best to start early as it lets you take advantage of compound interest and accumulate a substantial amount over time.
- Guaranteed Returns: Fixed deposits and other schemes for children offer stable and guaranteed returns. The interest rates are fixed at the time of investment and remain constant throughout the tenure. Thus, they become a reliable source of income for the child’s future.
- Tax Benefits: Some investment schemes provide tax benefits in the form of deductions while filing your income tax returns. However, the exemptions are eligible up to a certain limit.
Fixed Deposit and Other Schemes to Build a Corpus for Children
1. Bank Fixed Deposit Schemes
A bank fixed deposit scheme, also known as a fixed deposit (FD) or time deposit, is a financial instrument offered by banks where an individual can deposit a certain amount of money for a specified period of time at a fixed interest rate. FDs are popular among individuals looking for a safe and predictable return on their savings.
Some banks offer fixed deposit schemes, especially for children, and these schemes are Punjab National Bank Balika Shiksha Scheme, Yes Bank Fixed Deposit for Child, SBI FD for Child, and HDFC Bank Kids Advantage Account.
When considering fixed deposit schemes for children, it’s important to compare interest rates, tenures, and terms offered by different banks. Additionally, factors like flexibility in premature withdrawals, tax implications, and the reputation of the bank should also be taken into account. It’s advisable to consult with a financial advisor or contact the respective banks to gather complete information about the schemes and choose the one that best suits your requirements and financial goals.
2. Fixed Deposits under Guardianship for Minors
Most banks let the children open a traditional fixed deposit account if they have a guardian who would be managing it. The guardian opens the account on behalf of the minor, and once the minor turns 18, they can take control of their account. This helps in creating a substantial corpus over the long term.
Some of the banks that allow children to open a fixed deposit account include the following:
- HDFC Bank
- Canara Bank
- Bank of India
3. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana (SSY) is a government-backed small deposit scheme for girl children. It encourages the parents to build a corpus for their girl child‘s future education and marriage expenses. This scheme lets you make monthly or lump sum payments. Even though it is not a fixed deposit scheme, it helps you to create long-term wealth for your children, without taking any risks.
Some of its main features are as follows:
- To opt for the scheme, the age of the girl child must be below 10 years.
- A maximum of two girls in a family can have SSY accounts. More than two accounts are allowed if the girls are twins/triplets.
- The interest rates of the scheme are periodically updated by the finance ministry.
- Interest is credited to the SSY account every year.
- The maximum tenure is 15 years.
- Tax deductions are allowed under Section 80C of the Income Tax Act, 1961.
4. Systematic Investment Plans (SIPs)
Another investment plan to build a corpus for your child‘s future is investing in SIPs. It allows you to invest regularly over a long period of time. You can choose equity-oriented mutual funds and/or balanced funds to gain higher returns over the long term. As a result, compounding will help in accumulating a significant amount of funds for the child’s future.
5. Post Office Time Deposit Account
Post Office Time Deposit Account is similar to a bank fixed deposit scheme with some differences. You can open an account for one year, two years, three years, and five years. The entry age for the scheme is above 10 years of age and it provides tax deductions under Post Office Time Deposit Account. You receive the maturity amount at the end of the tenure, which includes capital deposits and interest earned.
The scheme offers high interest rates which lets you build a corpus for your children. The interest is credited annually to the fixed deposit account.
Post Office interest rates for the fixed deposit for a child (1 Jan 2023 – 31 March 2023)
|Period of Fixed Deposit for Child||Interest Rates|
|1 year||6.6% per annum|
|2 years||6.8% per annum|
|3 years||6.9% per annum|
|5 years||7% per annum|
6. Public Provident Fund (PPF)
You can open a PPF account in your child’s name to build a substantial corpus over the long term. The investment can be continued till maturity, which is 15 years. The upper limit of investment in a year is Rs. 1.5 lakhs.
Investing in your child’s future must be one of the top priorities in your financial plans. Therefore, it is important to consider fixed deposits and other schemes when crafting a financial plan for your child‘s future. Fortunately, many banks and NBFCs provide investment schemes to create wealth for your kids.
These schemes let you create a corpus for your child’s education and other major expenses in the future. Most of them provide a guaranteed return, making them a safe investment option. It is advisable to start early to gain the maximum benefits of compound interest. The FD amount can be withdrawn once the child turns 18.
Fixed deposits and the other schemes mentioned above are a boon in crucial situations. It is advisable to gain complete information before you decide upon the scheme. Sign up with Koshex to invest or find more information on fixed deposits for children.
use our simple Fixed Deposit Calculator to maximize the potential of your assets. Take the uncertainty out of financial planning and make decisions with confidence for the future.
What are some of the investment options to build a corpus for children?
Some options to build a corpus for children include:
- Fixed deposit schemes
- Public Provident Fund
- Sukanya Samriddhi Yojana
- Post Office Time Deposit Account
- Systematic Investment Plans (SIPs)
Is the fixed deposit for children taxable?
Yes, fixed deposits for children are taxable. However, some schemes allow deductions under the sections of the Income Tax Act, 1961.