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Costly Kiddy Bank Accounts

Pester-power may lure you to open an account for your child, but it is expensive and there are hidden risk.

Have you noticed a Kotak Bank advertisement for a ‘Junior Account’ for children. The 8-year old daughter of Shyam Prasad, a Bengaluru-based chartered accountant did, and wanted to open an account. Mr Prasad thought it was a good idea too and approached the Bank. He  was in for surprises. First, the junior account is expensive. It offers 6% interest but requires a minimum balance of Rs10,000. Second, Bank officials demanded he deposit twice the sum at the account opening stage, but could withdraw it later. This was not disclosed in the brochure.

This is probably because a Kotak junior account can be opened only if the parent/guardian issues a “standing instruction to debit Rs1,000 or above” in the junior account. This is linked to the guardian’s account in the Bank, casting several risks and responsibilities on the parent. It also says, “To be eligible for Kotak junior account proposition, RD (recurring deposit) or Investment account opening form should be submitted with the account opening form.” This has to be a recurring deposit or a systematic investment plan for 12 months. The Bank claims there will be no NMC charge (non-maintenance charge) but only as long as the guardian keeps topping up the account every month with an SIP or a recurring deposit. Otherwise, an average monthly balance of Rs5,000 has to be maintained.

Kotak Bank is probably banking on the pester-power of children to get a set of new deposits, with a steady accretion of funds. This forced saving may seem like a good idea, especially if you hope to inculcate the saving habit in your child. But, if you are going to keep Rs10,000 locked up and add to it every month, why do it at 6%? Why not open a fixed deposit that will earn significantly higher? All leading private banks also have child accounts—IDBI Bank, HDFC Bank, ING Vysya, Axis Bank and ICICI Bank. Most are cheaper to open, unless there are informal instructions that are not mentioned on their websites. Some, like HDFC Bank, offer an attractive Free Education Insurance cover of Rs100,000 (only if the parent or guardian dies in a vehicular accident). Many offer debit cards, net banking and phone banking. But none of the banks mentions any risks or warns people to educate their child before gifting their children the power of saving and spending. Parents/guardians will be saddled with the responsibility and liability if the child becomes a victim of phishing, fraud or simply loses a debit card. Doesn’t seem like such a great idea anymore, does it?

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COMMENTS

S Venkatram

3 years ago

I had a bitter experience with Kotak Bank too. Charges sprung without prior information.
My experience with HDFC has been equally bad. I had two FDs and a SB Account with Bank of Punjab before it was taken over by HDFC. The relationship manager advised me to continue my FDs to ensure no cut in interest. I had closed my SB account but she persuaded me to open one with the bank, telling me that as I maintained the FDs with the bank I did not need the required minimum balance in the account. Imagine my shock when I discovered that after some months of honouring the commitment, the bank had started deducting penalty charges for not maintaining the minimum balance. It had not bothered to send me a letter or inform me on my mobile. I discovered it only when I went to the bank after many months.
The bank manager expressed his helplessness saying the rules had changed. He offered to reverse the charges (about Rs 300 a month!) for the last two months and only if I put in additional amount in the SB account to bring it upto the minimum balance. I had lost trust and chose to have no further dealings with the bank. This happened a year ago. Is there any way I could have recovered the amounts they so unfairly deducted? Can I do anything now?

ramanathan dwarakanathan

3 years ago

opening a bank account for a minor is of less use as the a/c will be managed by the guardian/parent. this is just a mktg gimmick by banks.

REPLY

Arun Mehta

In Reply to ramanathan dwarakanathan 3 years ago

Thro this marketing 'Gimmick' the Bank generates what in marketing called ';Pester Power' of the kids to pester their guardians to get the Child a card just like he or she saw it in the class with some one.It's shame that the Bank is targeting a vulnerable group who have no rational thinking power for a financial product.

Vaibhav Dhoka

3 years ago

One has to be most careful when name of Kotak comes in picture may it bank or stock trading you are bound to be DUPED by this brand.

Arun Mehta

3 years ago

I had a bitter experience with this Bank which opened a S/B account for me thro a society Camp and with no min Balance stipulation.But later when I was not using the a/c regularly startyed debiting my a/c at 750 /Quarter for min Balance of 10,000(Not disclosed earlier) so much so when I went to close my a/c they debited 3750 of may balance.Be careful with this bank for 'Bait and switch' tactics and keep away other wise.Even their Ad campaign of 6 Pc on SB a/c is sham with T/C not disclosed in the TVC ad.

REPLY

Masoom Shaikh

In Reply to Arun Mehta 3 years ago

3,750/- at account closure? How could you allow it, I could kill for that sum ;)

nagesh kini

3 years ago

Imposing unreasonable conditions like heavy minimum balance requirements in fine print "Conditions apply" is a strict NO-NO and must be brought to the notice of IBA, BCSBI and RBI Customer Services Dept.
Linking with parental accounts may be good safeguard. Certainly not standing instructions for transfering hefty sums or high initial and minimum balance requirements. NO WAY!

REPLY

Naresh

In Reply to nagesh kini 3 years ago

Consumer protection in the financial services arena is non existent. There is no law and no teeth to any regulator besides SEBI for consumer protection. One can only invest after carefully reading all conditions and searching on the internet if anyone has had problems before with the financial product you are investing in. It is called due diligence. Relying on marketing is a definite no no. Simply put there is no redressal in case you are shafted by the seller. You have to suck it up.

Pradeep Mishra

3 years ago

Madam, i want to correct your categorisation of IDBI Bank as a private sector bank. It's a public sector bank and service delivery is as good as any of the private sector banks..

REPLY

nagesh kini

In Reply to Pradeep Mishra 3 years ago

I entirely agree with Pradeep Mishra.
IDBI Bank is a PSB and its services are indeed good.

shekhar

3 years ago

Hi ,I just want to ask whether the advanced brokerage is legal? Does SEBI give permission ? I hv open account but now thr service is poor.Can I get balanced brokerage back?

Naresh

3 years ago

Moneylife is doing a stellar job going through financial offerings with a fine tooth comb. SEBI can now safely shut its doors and let the private sector intervene in the form of Moneylife. Soon Moneylife will be as credible as an empanelled rating agency. Credibility comes not from statutory powers rather from a consistent approach which gives consistent results which is what moneylife is doing. Good job.

REPLY

Sucheta Dalal

In Reply to Naresh 3 years ago

Many thanks Mr Nayak. But we have a long way to go -- the bigger challenge is to let people know that we exist. We truly appreciate your kind words and hope we can reach out to more people -- especially with our financial literacy initiatives.

hasmukh

3 years ago

Private Banks are a better option than Public sector banks as the staff there is more polite, efficient etc., but you have to be very careful as these private banks are very prompt in debiting various charges under various heads some bearing new terms, not heard before). Such chgs form their major head of income.
Incidentally, Kids' accounts ought to be completely free of any charges whatsoever, but with their profit motive in mind, they will even penalise kids with heavy charges.

SEBI To Act on an FSA Tip-off. Really?

The market watchdog has announced an investigation but its track-record does not give us much hope about the outcome

Although SEBI has been collecting kudos for getting the Anil Ambani-led, ADAG group to sign the biggest consent order of Rs50 crore in 2011, Moneylife has always held that the regulator, under CB Bhave, allowed the group to get away easily. It did not admit guilt and claimed to have no knowledge about the round-tripping of a massive $250 million into Reliance Communications. Yet, the consent order was conveniently vague and did document the group’s shady transactions through UBS and a host of overseas entities. In fact, the Financial Services Authority (FSA) of the UK shared plenty of information with SEBI on that case and eventually acted more stringently against UBS officials.

On 12th August, The Economic Times reported that SEBI is conducting a wide-ranging investigation into the use of funds parked in undisclosed overseas bank accounts allegedly owned by several prominent promoters and CEOs, based on a tip-off from overseas regulators. Apparently, the investigation covers three European banks—two from Switzerland and one from the UK, which, with the help of portfolio managers, have been helping Indian industrialists round-trip money and manipulate share prices. Will SEBI get serious or simply go through the motions of investigation?

Also, while the regulator is checking round-tripping, the bigger issue probably ought to be terror funding in the Indian stock markets. Dr SV Raghavan and V Balasubramaniyan, in an article on 12th August, have documented growing evidence of this menace. This was first mentioned by then Intelligence Bureau chief MK Narayanan in 2007, but met with great scepticism. Since then, in 2011, minister of state for finance, Namo Narain Meena told parliament that “10 suspected cases of terror funding in the stock markets have been reported in the previous three fiscal years from 2009-2011.” In November 2012, home minister Sushil Kumar Shinde told an Interpol conference that “credible intelligence suggests terrorist outfits are investing in stock markets through spurious companies, setting up fictitious businesses and laundering money.” The authors say that the Financial Intelligence Unit received several suspicious transaction reports (STR) between 2009 and 2011 that ‘may be linked to terrorist financing’. They further point out that SEBI’s 2011-12 annual report says that it initiated an enquiry against 35 brokers for non-compliance with anti-money laundering (AML) regulations and combating financing of terror (CFT) regimes.
Given the seriousness of the issues involved—terror funding, money-laundering and stock manipulation—will the newly-empowered market regulator be under pressure to come up with some answers?

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