Fixed Deposits for Minors
Fixed deposit, popularly known as FD is a financial instrument where in someone can deposit a fixed sum in the financial institution and get back a certain amount after a certain period of time. The duration of deposits and the amount of proceeds in FD are prefixed and cannot be changed. Fixed deposit can be done in the name of any Indian National including minors and HUF.
Can a fixed deposit account be opened for Minors?
Yes, fixed deposits can be opened for a minor in any of the banks and post offices. There is often a misconception among few of us that fixed deposits can’t happen for minors, which is not true. Fixed deposits can be done in the name of minors; however, the proceeds can’t be claimed by the minors.
Advantages of fixed deposits for minor
If you have a sum of money that could be spared and you want to invest in lump sum, Fixed Deposits for your child could certainly be one of the options. The benefit is that you get a good return on the money and the money can be claimed at a time when your child grows older and you require a certain amount for his/her higher studies.
For example, if there is a new born baby in your family, a lot of gifts for her may come in the form of money. You can pool in some money from your own pocket and make an FD in the name of the baby. After ten years (which is the maximum tenure of fixed deposits in any bank), you can reinvest the same amount again in another FD and thus receive a good amount when the child grows as an adult.
This way, your child will have an extra investment for his/her higher studies or marriage. Moreover, you can use this FD for tax benefits as well as for collateral purposes. In all the possibility, this money would be untouched and grow at a steady pace for future financial security.
Disadvantages of fixed deposits for minors
One of the major disadvantages of fixed deposits for minors is that the proceed amount for the FD can’t be claimed by the minor. It would go to the caretaker of the account.
Moreover, some people feel that FD does not guarantee a good rate of return. There could be other investment tools through which you can get higher returns on your money. FD requires a lump sum investment and a lot of people may or may not spare a good amount for FD.
At the same time, smaller amounts of FD would not really be quite significant for the future keeping in mind other factors like overall inflation, etc.
Last but not the least, the pros and cons of FD for minors depends and varies from person to person and the decision should largely be based on the fact whether the money is idle or is a hard earned money. If it is idle and you just have to keep it in your saving account, FD can certainly be a better option.