Term Deposit accounts for minors, also known as Fixed Deposit accounts for minors, are bank deposits specifically designed for children and teenagers below the age of majority (usually 18 years). These accounts offer a secure and long-term investment option for parents, guardians, or legal representatives to save money on behalf of the minor. Here are detailed notes on Term Deposit accounts of minors:
1. Account Ownership: Term Deposit accounts for minors are opened and managed by parents, guardians, or legal representatives on behalf of the minor. The adult acts as the primary account holder and has full control over the account until the minor reaches the age of majority.
2. Age Limit: Minors below the age of majority are eligible to open these accounts. The age of majority varies among countries and is typically 18 years, but it may be different in some regions.
3. Legal Guardian/Parent Responsibility: The legal guardian or parent is responsible for making deposits, withdrawals, and managing the account until the minor turns the age of majority. They act as the custodian of the account and make decisions on behalf of the minor.
4. Identification and Documentation: To open a Term Deposit account for a minor, the legal guardian or parent must provide appropriate identification documents for both themselves and the minor. The birth certificate or any other proof of age of the minor is generally required.
5. Tenure and Interest Rate: Term Deposit accounts for minors have a fixed tenure, usually ranging from a few months to several years. The interest rate on these deposits is fixed at the time of opening the account and remains constant throughout the tenure.
6. Premature Withdrawals: In most cases, premature withdrawals from Term Deposit accounts for minors are not allowed. The funds are locked in until the maturity date. However, certain banks may offer exceptions or special provisions in case of emergencies or unforeseen circumstances.
7. Maturity and Account Transfer: When the minor reaches the age of majority, the account ownership automatically transfers to them. At maturity, the principal amount and interest are credited to the now-adult individual. The bank may provide options to reinvest the maturity proceeds in a new Term Deposit or transfer the funds to another account.
8. Taxation: The interest earned on Term Deposit accounts for minors is usually clubbed with the income of the parent or legal guardian and taxed accordingly. Tax treatment may vary depending on local tax regulations and the account holder’s tax status.
9. Benefits of Term Deposit for Minors:
- Secure Investment: Term Deposits provide a safe and stable investment option for parents or guardians to save money for the future needs of the child.
- Fixed Returns: The fixed interest rate ensures predictable returns over the deposit’s tenure, shielding the funds from market fluctuations.
- Inculcating Savings Habit: Opening a Term Deposit account for a minor can help inculcate the habit of saving and financial planning from an early age.
Term Deposit accounts for minors offer a disciplined and structured approach to saving for the child’s future needs, such as education, higher studies, or other life events. The parent or guardian must carefully consider the deposit tenure and interest rate to make informed decisions based on the minor’s financial goals and requirements.