Key Features of a Fixed Deposit for a Child

Fixed Deposits (FDs) are a popular savings tool in India. They are secure and offer guaranteed returns. Parents often consider FDs for their children’s future needs. FDs can help save for education, marriage, or other expenses.

Understanding Child Fixed Deposit Plans

Child fixed deposit plans are specific FDs aimed at securing a child’s future. Banks and Non-banking Financial Companies (NBFCs) in India offer these plans. They come with unique features designed to benefit children. These plans ensure that the funds grow over time.

Key Features of Child Fixed Deposit Plans

Higher Interest Rates

Child fixed deposit plans often offer higher interest rates compared to regular FDs. This helps maximise the savings over time. Interest rates vary among issuers. It’s essential to compare rates from different banks and NBFCs.

Flexible Tenors

The tenor of child FDs can range from a few months to several years. This allows parents to choose a duration that aligns with their financial goals. For example, short-term FDs can cover school fees. Long-term FDs can fund higher education. 

Tax Benefits

Investing in child FDs can offer tax benefits under Section 80C of the Income Tax Act, 1961. This section allows deductions up to ₹1.5 lakh in a financial year. This reduces the taxable income, offering significant savings. 

Nomination Facility

Parents can nominate their child as the beneficiary of the FD. In the event of the parent’s demise, the funds will directly transfer to the child. This ensures financial security for the child.

Premature Withdrawal Option

Many child FD plans allow for premature withdrawal. This is crucial in emergencies. However, it may come with penalties or reduced interest rates. It’s advisable to understand the terms before opting for early withdrawal. 

Loan Against FD

Some banks and NBFCs offer loans against child FDs. Parents can borrow up to 90% of the FD amount. This is useful for meeting unexpected expenses without breaking the FD. 

Comparing Interest Rates of Child Fixed Deposit Plans

Here is a comparison of interest rates offered by various banks and NBFCs for child FDs:

Issuer	Interest Rate (p.a.)
Bajaj Finance Ltd.	8.60% p.a.
AU Small Finance Bank	8.50% p.a.
Mahindra Finance Ltd.	8.30% p.a.
YES Bank	8.50% p.a.
PNB Housing Finance Ltd.	8.25% p.a.

Disclaimer: The rates are subject to change. It is best to check the official website for more details.

Steps to Open a Child Fixed Deposit

Opening a child FD is a straightforward process. Follow these steps: 

1. Choose a Bank or NBFC

Research various banks and NBFCs. Compare the interest rates and features they offer. Select the one that meets your requirements

2. Visit the Branch or Apply Online

You can either visit the branch of the chosen bank or NBFC or apply online through their website. Many issuers offer an easy online application process 

3. Fill the Application Form

Fill out the application form with the necessary details. This includes personal information and details of the nominee (child)

4. Submit Documents

Submit the required documents. These usually include identity proof, address proof, and the child’s birth certificate. Ensure you have the originals and photocopies for verification

5. Deposit the Amount

Deposit the amount you wish to invest. This can be done through cheque, cash, or online transfer. The bank or NBFC will then open the FD account

Benefits of Child Fixed Deposit Plans

Financial Security

Child FDs ensure financial security for your child’s future. The guaranteed returns help in planning for major expenses. 

Encourages Saving Habit

Starting an FD in your child’s name encourages the habit of saving. It teaches them the importance of financial planning from an early age.

Risk-Free Investment

FDs are a risk-free investment option. The returns are not affected by market fluctuations. This makes them a safe choice for long-term savings. 

Regular Income Option

Some child FD plans allow receiving interest payouts. These payouts can be at regular intervals. This can be monthly, quarterly, or annually. It provides a steady income stream for ongoing expenses.

Important Considerations

While child FDs are beneficial, consider the following points:

Penalty for Premature Withdrawal

Understand the penalties for premature withdrawal. This will help in planning for emergencies without losing much interest.

Interest Rate Fluctuations

Interest rates on FDs can fluctuate. Keep an eye on the rates to ensure you get the best deal.

Tax Implications

While FDs offer tax benefits, the interest earned is taxable. Plan your investments considering the tax implications.

Child fixed deposit plans in India are an excellent way to secure your child’s future. They offer higher interest rates, flexible tenors, and tax benefits. Choosing the right plan requires careful consideration of the features and benefits. Compare different issuers like Bajaj Markets. This will help you find the most favourable option. Investing in a child FD not only ensures financial security but also instils a habit of saving from a young age.

For more information, visit the official websites of banks and NBFCs. Check their sites for other features as well. Ensure you stay updated with the latest rates and terms to maximise your savings.