A child above the age of 10 can operate their own account. Banks usually offer them a chequebook and a debit card so that they can withdraw money. Also, the parents of a minor child can withdraw money from their account.
What are the RBI Guidelines for Minor Account?
Many parents plan to open a savings account for their kids so that they gain some real-time experience in money handling and can become responsible. Also, it helps in wealth creation due to the accumulation of interests over the long term. However, they should gain insights into RBI guidelines before opening the account.
Here are some minor account RBI guidelines you should keep in mind if you plan to open an account for your kid.
Why Are RBI Rules Important in Accounting for Minors In India?
The RBI is solely responsible for establishing monetary stability, regulating currency, maintaining currency reserves, and overseeing India's credit and currency system. So, the RBI has framed several rules to ensure a harmonious cash flow.
If an individual or entity does not abide by these rules, RBI ensures that strict action is taken against them. Also, all those monetary actions related to minor accounts or other accounts happen to become null and void if they violate the rules framed by RBI.
Due to these reasons, It becomes sacrosanct for all the banks and Indian citizens to abide by these rules when making monetary moves. The RBI has framed several rules for opening a minor account that they should strictly abide by during the process.
What Are the Rules for Opening an Account for a Minor in India?
Here are some rules that you should keep in mind while opening an account for a minor in India:
- The RBI has now stated that minors with ages above 10 years have the flexibility to open a savings account in any Indian bank.
- A minor must have a guardian who can operate their account. The father is the natural guardian, and in his absence, the mother becomes the legal guardian as per minor joint account RBI guidelines.
- As per the RBI guidelines, you can save a maximum of ₹1 Lakh in the bank. Also, it is mandatory to have a minimum balance of ₹10,000. So, you should monitor contributions to this account accordingly.
- Banks usually have the flexibility to decide the minimum age they will allow a minor to open and operate their account single-handedly. Before that, they will need a natural or legally-appointed guardian to open savings, and fixed, recurring bank deposit accounts.
- The parent or guardian can set a withdrawal limit for the account so that their minor kid cannot take out a substantial amount and face financial losses while doing so.
How to Open a Bank Account for Minors?
Opening a bank account is similar to opening a savings account for any other individual. You can follow some hassle-free steps to quickly open an account in the name of a minor:
Step 1: Determine the Type of Account That You Should Open
There are different types of accounts available in India. So, the primary step is going through them to check the best options available. Usually, opening a savings account for your minor kid allows you to gain maximum benefits.
Step 2: Compare Savings Accounts Across Various Banks
The features and offers of savings accounts can vary across lenders. Hence, comparing them thoroughly is imperative to select the best one. This ensures that your minor kids keep reaping over time.
Step 3: Check Interest Rates Offered by Different Banks
Select a bank that offers high interest on the savings account of a minor. This will ensure that your kids earn high returns from the deposits in these accounts. Over time, this can lead to a substantial amount after adding the interests.
Step 4: Fill Out Savings Account Application Form Accurately
After finalising the bank, fill out the savings account application form accurately. Also, attach all the necessary documents along with it. Once done, verify the documents and information provided to minimise the chances of errors.
Step 5: Deposit Money in Your Kid’s Savings Account
You can submit the money in cash or cheque to your kid's bank account. This marks the beginning of the investment journey of your minor kid.
You have the flexibility of opening the account online as well. For this, visit the official website of your preferred bank and fill out the savings account application form. Upload the necessary documents and transfer the required amount online to open the account.
What Are the Documents Required for Opening a Minor Bank Account?
Wondering which documents should you keep ready? Below are the crucial papers that you will need to submit when opening a minor account:
- Birth certificate of your minor kids
- KYC documents of your kids, like a minor PAN card
- Your KYC documents, like an Aadhaar card, Voter ID card, etc.
The simple documentation and completely online process allow you to quickly open a minor account from the comfort of your home.
Apart from this, you should note that there are certain restrictions that RBI imposes on opening certain types of deposit accounts. Hence, knowing them before beginning the account application process becomes mandatory.
What Are the Restrictions on Opening Certain Types of Deposit Accounts ?
Deposit Schemes with a Lock-In Period
The RBI has mandated that banks be eligible to issue special term deposit products to customers with a lock-in period between 6 and 12 months. The customers are not permitted to withdraw any money during the lock-in period. Also, if they make premature withdrawals post-lock-in period, they will not stand eligible to receive the interest.
However, some power related to part pre-payment also rests with the banks. Also, depositors should note that the interest rates of these special products vary somewhat from the normal deposit schemes. So, before depositing money in them, you should go through all the features and requirements.
Minor's Account with Mother as Guardian
Only a legally appointed guardian can open a bank account in the name of a minor. Once a minor crosses 18, they must intimate the same to the bank. Furthermore, they must submit a specimen of their signature to the bank for all operational purposes.
Minors above the age of 10 can handle their bank account independently. In such cases, the bank can limit the deposit and withdrawal of money from the bank. Also, banks have the flexibility of demanding documents while opening an account for a minor.
Opening of Bank Accounts in the Names of Minors
Under normal circumstances, banks are reluctant to open a minor bank account when a mother is a guardian, even if the father is alive. However, RBI has stated that people can open fixed or recurring deposit and savings bank accounts in a minor's name with the mother as a guardian.
However, for this, it is mandatory to ensure that account holders should not overdraw money and always remain on credit. Also, the bank will have to take consent from a minor if their mother plans to withdraw a substantial sum of money from that account.
Knowing about the RBI guidelines for minor accounts can help you decide if doing so will benefit you and your kid. Several banks offer attractive interests on minor account deposits. So, comparing different banks thoroughly to get the best returns on your deposits becomes vital.
FAQs About Minor Account and RBI guidelines
Yes. According to Section 64 (1A) of the Income Tax Act, any money a child receives in the bank account is clubbed with their parents' income. So, the parents will have to pay a tax on them per the applicable rates.
Opening a bank account can be beneficial as minors will have first-hand knowledge of operating bank accounts efficiently. This can include online banking, withdrawing cash from ATMs, and depositing a cheque. Also, they can have an idea about money management.
According to the RBI guidelines, only a minor above 15 has the flexibility to operate their bank account using UPI. However, a minor under 15 who holds a joint account with their parents is not eligible for a UPI transaction.
Minors can easily become a victim of bank fraud and financial losses. Parents and guardians will ultimately incur these losses. To prevent this, the RBI has given the authority to the banks to limit the transactions.
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