Should you go for student savings account?

A savings account is a launch pad to start managing one’s finances. It is an effective way to make children financially aware at a young age. It’s good training that helps when they are away from home to pursue higher education. They need to manage their finances on their own and take care of their expenses and fees. In such a context, a savings account can be their best friend.

Bank of Baroda has come up with BOB BRO Savings Account, which is marketed as a product tailor-made for students to manage finances on their own. Other banks too have been providing such student savings accounts. Here’s more about the BOB product, options available, account opening process and its suitability.

What’s on offer

Apart from BOB, several banks such as IDFC FIRSTBank, HDFC Bank, Union Bank, Bank of India, Federal Bank and Kotak Mahindra Bank offer such accounts. Typically, these accounts have zero minimum balance requirement except for HDFC DigiSave Youth Account for which average monthly balance requirement is ₹5,000 and ₹2,500 for urban and rural areas respectively.  

The interest rate earned on these accounts typically ranges at 3-4 per cent. However, in case of IDFC Future First Savings Account, the same can reach 7 per cent in case of balance more than ₹5 lakh. Debit card offered through these accounts typically allows Airport Lounge access in major cities.

The debit cards offered with these accounts allow ATM withdrawals in the ₹25,000-50,000 range with certain exceptions, such as Kotak Uni Student Bank account for which the same is ₹10,000. Most of these cards allow daily POS (point of sale) transaction limit of around ₹50,000. However, for certain accounts, for example, HDFC DigiSave Youth account, it is higher at ₹3 lakh. Also, the debit cards come with cashback and reward points on shopping.

Further, as this product is targeted at students, certain banks offer benefits with respect to student loan. BOB BRO Savings Account offers collateral free education loan of up to ₹40 lakh with zero processing fee and interest rate concession of up to 15 basis points. Similar is the case with HDFC DigiSave Youth Account and Kotak Uni Student Bank Account.  

Also, BOB BRO Savings account offers auto-sweep facility wherein an amount exceeding ₹25,000 shall be converted into a short-term fixed deposit.

Operational aspects

Typically, students beyond matriculation level, including professional degree/diploma holders in the 18-25 years range are eligible to open such accounts, though there are some exceptions. For instance, the beginning age is much lower at 10 years for Union Bank of India Student Savings Account. In most cases, one can open the account only if he/she is a major and hence one can open the sole account. However, in case of BOB and Union Bank of India, where individuals under the age of 18 are also allowed to open such an account, joint account should be opened with a parent or guardian in case of minor.

The primary documents needed to open any savings account are required here too — such as PAN Card, two recent passport-size photos and other identity and address proof such as passport, driving licence, voter ID card and Aadhaar card. Further, since the account is specifically for students, a bonafide letter from the school or college and certificate evidencing matriculation pass or college ID card are required over and above other regular documents.

While one can open student account at most of these banks online, in case of a few banks, such as IDFC FIRST Bank, one needs to visit the bank’s branch to open the account.

Further, upon reaching the age limit specified for the account i.e. 25 years in most cases, the student savings account automatically gets converted into a regular savings account of the same bank. Post conversion, the account holder shall be bound by the terms applicable to the regular account, such as maintenance of average balance in the account.      

Are they worth it?

The product typically scores over regular savings account when it comes to minimum balance requirement. While the same is nil in most student savings accounts, average monthly balance requirement ranges at ₹10,000-15,000 for the regular savings account. However, the daily withdrawal limit for student savings account is generally less than that of regular account’s ₹40,000-1 lakh. Similarly, the daily POS transaction limit is generally lower for student savings account compared to regular savings account.

Ultimately, these accounts are suitable for students moving out of their home town for pursuing further education. Zero balance requirement works in their favour due to their having no source of regular income while financial discipline is inculcated due to lower withdrawal limits.

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