Now, a savings account for 10-year olds!

Don't be surprised if your 10-year old asks you to transfer his monthly pocket money to his savings bank account, and that too online! As per a recent directive by the Reserve Bank of India (RBI), minors above the age of 10 years may be allowed to open and operate savings bank accounts independently, if they so desire.

Keeping in view their risk management systems, banks, however, can fix limits in terms of age and amount up to which minors may be allowed to operate the deposit accounts independently. They can also decide, in their own discretion, as to what minimum documents are required for opening of accounts by minors.

The proposal also permits banks to offer additional banking facilities like internet banking, ATM /debit card, cheque book facility etc., subject to the safeguards that these accounts are not overdrawn and always have a credit balance.

Safety

The central bank had, in December 1976, permitted banks to allow minors' accounts (fixed and savings deposit accounts) to be opened with mothers as guardians subject to safeguards. The facility was then extended to of allowing opening of minors' account with mothers as guardian, to Recurring Deposits (RDs) in 1989.

According to the RBI, the latest step will promote the objective of financial inclusion and also to bring uniformity among banks in opening and operating minors' accounts.

But what about the safety mechanism? Is there a reason to worry?

Dr. Soumya Kanti Ghosh, chief economic adviser (economic research department), State Bank of India, says, "This is a positive step and is directed more towards enabling more people to have a bank account with an objective of financial inclusion. With this, 10-year olds can now open accounts singularly. In certain cases where banks allow minors who are 12-years old or above, the move will reduce the age requirement criterion. This will help banks get more accounts into their fold."

"I am not too much worried about the safety element as it is well taken care of by the banks. The banks have multiple security layers. Moreover, KYC (Know Your Customer) norms are quite stringent that take care of verification and validation of all accounts," he adds.

Available products

However, the recent move to permit the minors to open and operate saving bank account merely lowers the age requirement in certain cases. There are several products available that let the minors open and operate saving bank accounts, albeit if they are above 12 years.

With HDFC Bank, for instance, minors can open and operate a savings bank account if they are above 12 years.

"The minor can open a savings bank account and the same can be operated by the natural guardian or by the minor himself / herself, if he/she is above the age of 12 years. The account can also be opened jointly," the bank's website says.

Adding: "On attaining majority, the erstwhile minor should confirm the balance in his/her account and if the account is operated by the natural guardian / guardian, fresh KYC documents and specimen signature of erstwhile minor duly verified by the natural guardian would be obtained and kept on record for all operational purposes."

ICICI Bank offers 'ICICI Bank Young Stars Account' for children in the age group of one day - 18 years. As per rules, it is essential for the parent/guardian to also hold an account with the bank. However, it authorises only the guardian / parent to open and operate the account at all times.

Likewise, Kotak Mahindra Bank also offers 'Kotak Junior Account', which is NMC (non-maintenance charges) waived account with personalised debit cards for minors that are issued only on gurdian's request to children above the age of 10 years with a withdrawal limit of Rs 5,000.