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?