Fixed Deposit for Child: A Complete Guide for Smart Parents

A fixed deposit plan is considered to be a savings-cum-investment plan that is offered by financial institutions & banks. These plans are best suited for risk-averse investors, providing a guaranteed source of returns, which includes the principal amount together with interest. 

Fixed deposit is one of the Best Saving Schemes for a child that allows parents to maintain a dedicated fund to fulfil their child’s requirements. These deposits are opened in the name of a minor child, accompanied by the parents’ names. These fixed deposits earn interest for a definite tenure.

How to Open a Fixed Deposit for Your Child?

Provided are the different modes in which a fixed deposit can be opened for a child:

1. Online mode

An account holder can open a fixed deposit online, which saves time, making renewals & payments easy & hassle-free. It is just that the process & methods might differ from bank to bank or financial institution. Follow these steps to open a fixed deposit online:

• Open the official website of your respective bank or financial institution where a fixed deposit is to be opened. 

• Register by filling out your basic details, like name, email ID, contact details, etc., as required.

• Make a login using your credentials.

• Click on the tab “Open a Fixed Deposit”.

• Fill out some additional details asked for, such as principal amount, tenure, & nominee-related details.

• Confirm the accuracy & correctness of details & information provided for its correctness.

•  Proceed to make payment towards the principal amount via internet banking.

• Download the receipt of the payment made for your ready reference. 

2. Offline Mode

If an account holder cannot access the online platform, they can get the fixed deposit account opened offline, following the steps:

• Visit the nearest bank branch or the NBFC of your choice.
• Fill out the fixed deposit application form.
• If you do not have an existing account in the respective bank, submit the documents required, including identity & residential proofs, to get your KYC done.
• Submit the necessary documents as required to get the fixed deposit opened.
• Next, submit the application form to the bank representative along with the documentation.

Benefits of Investing in a Fixed deposit for your Child

Provided are the benefits of investing in a fixed deposit for your child:

• Assured Returns with zero market risk

Fixed deposits offer assured returns, not linked to the market, i.e. not affected by the market fluctuations. This ensures the future objectives are never compromised during uncertainties.

• Flexible tenure

It allows you to choose a tenure depending on your milestones, such as school expenses, higher education, or marriage, which can be renewed upon maturity.

• Power of Compounding

Under a cumulative fixed deposit, the interest amount gets reinvested, leading to quicker savings. Hence, it is always advised to start investing early & build a huge corpus till maturity.

• Liquidity

It allows premature withdrawal of funds or availing a loan against fixed deposits in case of uncertainties, ensuring the readily availability of cash as & when required.

• Higher Interest Rate

If availed by grandparents for their grandchildren, they can enjoy higher rates offered to senior citizens, which will let their corpus funds grow faster.

• Simple & Convenient

The process of opening a fixed deposit is quite simple, easy & hassle-free on an online platform, hence allowing a child investment plan to be timeless.

Things to be considered while choosing the Best Child Investment Plan

The following are the things to be considered while choosing the Best Child Investment Plan:

• Duration of Deposit

Decide on the investment tenure, i.e. the duration for which you want your funds to remain invested. A longer investment tenure provides high interest rate, but also blocks funds during the lock-in period. If you want to invest funds for a long-term financial objective, a longer-term fixed deposit can be opted for. If you have short-term financial objectives, you can opt for a medium investment tenure.

• Interest Rate

Look for interest rates offered by different banks & financial institutions while buying fixed deposits for a child. With a high interest rate, a high corpus amount can be achieved, mainly when the investments are started sooner.

• Payout Choice

They come up with a choice to receive interest paid out, i.e. either regularly or at maturity. 

• Penalty Terms

Look out for the terms & conditions related to withdrawal & penalties, etc.

• Safety & Reputation

Choose a company with a good track record providing stable & good customer support, ensuring security.

Eligibility criteria for opening a fixed deposit for a child

Though all the banks & financial institutions have a different set of criteria to be met to apply for opening a fixed deposit for your child. The following are the categories that are eligible for opening a fixed deposit:

• Non-Indian Resident (NRI)
• Minors 
• Partnership Firms
• Indian Resident
• Clubs 
• Senior Citizens
• Societies
• Sole Proprietorship
• Limited Companies
• Hindu Undivided Family (HUF)

When should Fixed Deposits be chosen?

Fixed Deposits best suit an investor if:

• You are a risk-averse investor who is looking for an investment which helps to save over a definite period.
• You want a flexible investment period.
• You want to get a lump sum amount of funds at the time of maturity, along with the interest payouts on a regular basis.
• You are looking for liquidity in your investments, choose fixed deposits to avail the premature facility option. 

Documents Required

Provided is the list of documents required to be submitted while getting a fixed deposit opened:

• Proof of birth of child, i.e., birth certificate
• Permanent Account Number of the parent 
• ID proof of a parent- Voter ID, Driving license, Passport, or Aadhar card
• Address proof – Aadhar Card, Utility Bills, or Rent Agreement
• A recent passport-sized photograph

Conclusion

Fixed deposits are the most reliable mode of investment that secures the financial future of an accountholder, offering assured returns. One should clearly define their financial objectives, investment horizon, & return expectations before investing in a fixed deposit. These are low-risk investment plans that allow you to withdraw funds when the plan matures or in case of emergencies. Hence, fixed deposits for children are a disciplined & safe investments that allow savings for the financial future of your children.

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