What are the types of savings for children that parents can consider?

Many parents are interested in having a saving account for children and the following are few types of savings accounts available for children.

Regular saving accounts for children

It is the most common type of savings account opted by parents to save on behalf of their children. The savings accounts are set up in the name of the children like a normal saving account held by an individual, but the same is controlled by parents. The child is not eligible to make any transaction with the bank; it is the parents who take charge of the transactions. The parents are allowed to deposit and withdraw the money from their child’s account. Regular deposit on these accounts may build up the balance amount gradually. Some follow the habit of depositing a fixed amount every month and some make deposits at irregular intervals. Parents have the complete control over the account until the child attains eighteen years of age.  The major and only disadvantage of the savings account for children is that, they are not eligible for receiving higher rate of interest.

Children’s Bonus Bond

It is like a fixed deposit where the parents invest a lump sum amount on behalf of the child. The attractive feature of this scheme is that the accumulated amount can be drawn without incurring tax, in simple term it is a tax free savings. The amount deposited can remain in form of investment or deposit until the child attains the age of eighteen or twenty one as the case may be. When the bond is maintained for more than five years, additional bonus is added to the account, which is also tax free. The amount can be withdrawn at anytime, but if the same is done within the first year, no accumulated interested will be added to the withdrawal. Hence, bonus is offered to encourage long term savings.

Fixed Term Savings Accounts

Fixed term savings account is similar to children’s bonus bond except that the amount invested cannot be drawn until the fixed period of time or lock in period. Any amount can be deposited under this scheme for minimum period of one year to maximum of five years. The main advantage of this type of account is that these accounts are offered with higher rate of interest when compared to the interest rates offered by other type of savings account for children.

Child Trust Fund

It is a saving option offered by Government in which, the Government issues the vouchers of different denominations to the parents of new born child to invest on behalf of the child. Again, another set of vouchers will be issued by the Government when the child turns seven. Children do not have control over the invested amount until they attain the age of eighteen. The scheme contains the benefits as extended by other saving schemes for children and includes tax free investment and withdrawal. However, this scheme will not be active for a longer period as the Government is likely to discontinue the scheme.