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The best gift for your child: A fixed deposit account

The best gift for your child A fixed deposit account

Teaching your child about money can be combined with creating a large corpus for their future. Fixed deposits create a safety net for your child’s future.

There is no mountain too high, no task too big when it comes to fulfilling your child’s dreams. But as inflation creeps up and increased living costs result in higher expenses, you begin to wonder if you can help support your child’s future adequately.

Like many parents, you worry that you may not be able to put up the necessary money to make your child’s future dreams possible. Often, the simple steps you take today can help secure their tomorrow. Opening a fixed deposit is one of the ways to fulfil your child’s dreams.

How a fixed deposit works

A fixed deposit is a sum of money that you invest upfront in a bank or financial institution. You can invest the money for a certain period of time (the tenure is measured in months). The bank or financial institution offers a certain fixed deposit interest rate on the sum of money throughout the tenure. Once the deposit tenure is up, the deposit matures and is repaid to you with the interest earned on.

For example, if you are offered a fixed deposit rate of 7%, the interest is calculated on the entire tenure (in months) of the deposit. The more money you invest, and the higher the fixed deposit interest rate, the higher is the earning on it.

A fixed deposit – the best gift for your child

There may have been times when you have not been able to save money for yourself. But you have always strained every nerve to save up for your child’s future.

A fixed deposit helps you in this regard. By setting aside a large fund of money today, you end up saving – and earning on –for the future. You can use the deposit money for your child’s higher education, or to help them set up their own business, or even to pay for their wedding.

How to get the best fixed deposit

There are a few points to consider before you invest in a fixed deposit, such as –

* The tenure. You can choose the fixed deposit tenure in terms of months. This is a useful feature; you can time the deposit maturity to coincide with major milestones. For example, the deposit could mature in time for your child’s admission to degree college, or a foreign university.

* The fixed deposit rates. Most banks and financial institutions are offering between 6% to 8% fixed deposit interest rates in India. The higher the rate, the higher is the earning potential of the deposit. So when you decide on the financial institution, do consider the rate they are offering.

* The taxable component of the deposit. Interest income exceeding Rs 10,000 on the deposit is considered as taxable income. However, you can invest in tax saving FDs with tenures of 60 months and higher.