How to Save Money for Kids’ Future: A Practical Guide for Parents

Different financial products serve different purposes. Some offer interest at a rate set under their terms, while market-linked investments can fluctuate in value. Your choice should reflect when you need the money, how much risk you can bear and whether you need access to the funds before the planned date:

1. Sukanya Samriddhi Yojana (SSY)

Sukanya Samriddhi Yojana is a government small-savings scheme intended for a girl child. A parent or legal guardian can open an account for an eligible girl child before she turns 10, subject to the scheme rules.

Key features include:

• Minimum deposit of Rs. 250 in a financial year.
• Maximum deposit of Rs. 1.5 lakh in a financial year.
• Deposits permitted for 15 years from the date of account opening.
• Maturity after 21 years from the account-opening date, subject to the scheme rules.
• Partial withdrawal for eligible higher-education expenses, subject to applicable conditions.

The notified interest rate for October–December 2026 is 8.2% per annum. The government reviews small-savings rates periodically, so this rate should not be assumed to remain unchanged throughout the account’s tenure.

SSY may suit eligible families saving for a girl child’s longer-term needs. However, its withdrawal restrictions mean it may not be appropriate for every goal or for money that could be needed at short notice.

2. Public Provident Fund (PPF)

A Public Provident Fund account is a long-term small-savings option. A parent or eligible guardian can open and operate an account for a minor child under the applicable rules.

Key considerations include:

• The account has a 15-year maturity period, subject to the scheme rules.
• The annual deposit limit is Rs. 1.5 lakh.
• The minimum annual deposit is Rs. 500.
• The notified interest rate for October–December 2026 is 7.1% per annum.
• The combined deposit limit for a guardian’s own PPF account and a minor child’s PPF account must be considered when planning contributions.
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PPF may suit long-term savings goals, but it has defined maturity and withdrawal rules. Tax treatment depends on the applicable tax provisions and the taxpayer’s circumstances.

Before opening an account for a child, check the current rules on eligibility, account operation, deposits and withdrawals.

3. National Savings Certificates (NSC)

National Savings Certificates are small-savings instruments available through authorised post offices. They can be considered when planning for a defined medium-term goal.

The current published interest rate for NSC for the October–December 2026 period is 7.7% per annum, subject to the applicable scheme terms. NSC has a five-year maturity period.

Before investing, check the current rules for purchase, maturity, premature encashment and taxation. Do not assume that a tax benefit will apply to every investor or under every tax regime.

4. Fixed deposits (FDs)

A fixed deposit allows you to place a lump sum with a bank or an eligible deposit-taking financial institution for a specified tenure at an agreed interest rate.

Depending on the product, an FD may be useful for a planned expense when the maturity date aligns with the time you expect to need the money.

Consider these factors before choosing one:

• The interest rate for the selected tenure and payout option.
• Whether interest is paid periodically or accumulated until maturity.
• The issuer’s creditworthiness and applicable deposit protection.
• Premature withdrawal conditions and any reduction in interest.
• The tax treatment of interest income.

Bank deposits and company deposits offered by non-banking financial companies (NBFCs) do not have identical deposit protection. Eligible deposits with insured banks may be covered by DICGC within its applicable limits and conditions; NBFC deposits are not covered by DICGC deposit insurance. A credit rating is not a guarantee of repayment.

An FD may provide more predictable interest than a market-linked investment, but the product and issuer still need to be assessed carefully.

If you are considering an FD, you may want to check out Bajaj Finance and its Fixed Deposit interest rates. With a high interest for non-senior citizens, you can get up to 7.75% p.a. With compounding the same interest over and over, you can have a huge sum accumulated for your child!

5. Mutual funds

Mutual funds pool money from investors and invest it according to a scheme’s stated investment objective. Depending on the scheme, investments may include shares, bonds or a combination of assets.

Different types of mutual funds have different risk profiles:

• Equity mutual funds: Invest primarily in shares and can experience significant fluctuations in value. They may be considered for suitable long-term goals by investors who can bear market risk.
• Debt mutual funds: Invest primarily in debt and money-market instruments. Their values can still be affected by interest-rate movements, credit risk and other factors.
• Hybrid mutual funds: Invest across asset classes, commonly equity and debt, according to the scheme’s strategy.

A systematic investment plan (SIP) is a method of investing a fixed amount in a mutual fund at regular intervals. It is not a separate investment product and does not guarantee returns or protect an investor from market losses.

Read the scheme documents, understand the risks and consider whether the investment horizon matches your child’s goal.

6. Gold

Gold can be held as physical gold or accessed through certain financial products, including gold exchange-traded funds and other permitted investment structures.

Before investing, consider the form of gold, costs, storage requirements where applicable, liquidity and price fluctuations. Gold prices can rise or fall, and gold does not guarantee a particular return.

Gold may form part of a diversified financial plan, but relying on it alone to fund a future education expense can expose your goal to changes in its market price.

How should you compare these options?

No option is automatically right for every child or family. Compare the product’s features with the date you need the money and the consequences if returns are lower than expected.

Parents can introduce basic money-management concepts through simple activities suited to the child’s age. The goal is to help children understand that money can be spent, saved or allocated towards a future purchase:

1. Use a piggy bank

A piggy bank gives young children a visible way to track savings. Encourage them to set a small goal, such as saving towards a book or toy, and watch the amount grow over time.

2. Introduce pocket money

If you give your child pocket money, explain the amount available and how long it is expected to last. Encourage them to set aside some money before spending the rest.

The purpose is not to impose a fixed amount, but to help them practise planning within a limit.

3. Help them set savings goals

A goal makes saving easier to understand. For example, if a child wants an item that costs Rs. 600 and can save Rs. 100 each week, it would take six weeks to reach the target, assuming no money is withdrawn.

This simple exercise introduces planning, patience and the relationship between regular saving and a future purchase.

4. Explain needs and wants

Help children distinguish essential expenses from optional purchases. Everyday examples—such as school supplies compared with an extra toy—can make the distinction easier to understand.

The aim is to help children make informed choices rather than suggest that every non-essential purchase is wrong.

5. Introduce a simple budget

Older children can divide their pocket money into three categories: spending, saving and sharing, if appropriate for the family. The proportions can change depending on the child’s age and circumstances.

Review the budget together and discuss what worked, what did not and whether the savings goal needs to change.

6. Teach the basics of banking and interest

As children grow older, explain what a savings account is, how deposits and withdrawals work, and how interest differs from investment returns. You can also introduce concepts such as budgeting, borrowing, online payment safety and the risks of sharing banking credentials.

Use examples that are appropriate for their age and avoid presenting market-linked returns as guaranteed.

The amount depends on the goal, the child’s age, the time available, expected costs and your household’s ability to contribute.

Consider these steps:

1. Define the goal: For example, funding a university course or another planned expense.
2. Estimate its future cost: Account for the possibility that prices may rise before you need the money.
3. Review your existing savings: Calculate how much is already available for the goal.
4. Determine the shortfall: Subtract your current goal-specific savings from the estimated future amount.
5. Choose a contribution: Work out an affordable regular amount based on the time remaining and the assumptions used for returns.
6. Review your progress: Adjust contributions when your income, expenses or the goal changes.

For example, suppose your estimated future target is Rs. 10 lakh and you have already saved Rs. 2 lakh specifically for that goal. The remaining target is Rs. 8 lakh before accounting for any future returns, taxes or costs.

This is a simple planning illustration, not an investment projection. The contribution required to reach the target will depend on the time available and the return earned.

Do not neglect your own emergency fund, insurance needs or retirement savings to meet a child’s goal. A sustainable plan should account for the whole household’s financial position.

You can start planning as soon as you have a clearer view of your household budget and financial priorities. Beginning early can give you more time to contribute regularly, but it is still possible to establish a savings plan when a child is older.

The approach may differ depending on the time remaining:

• For a young child: You may have more time to contribute towards long-term goals. The investment choice should still reflect your ability to bear risk.
• For a school-age child: Identify likely education milestones and estimate costs more precisely as information becomes available.
• For a teenager: Review the amount already saved, the expected date of the expense and the risks of investing money that will be needed soon.

As the goal approaches, review whether the money should be moved towards options with a more suitable risk and liquidity profile. Avoid relying on an investment’s long-term average return when the funds are needed on a fixed date.

Saving for a child’s future is easier to manage when you start with clear goals, estimate future costs and make regular contributions that fit your budget. Options such as SSY, PPF, NSC, FDs, mutual funds and gold have different features, risks and access conditions, so compare them with the intended use and timing of the money.

Alongside financial planning, teach children simple habits such as saving part of their pocket money, setting goals and making spending choices. Review your savings plan as your child grows and your circumstances change. A realistic, consistent approach can help you prepare for future expenses without compromising your household’s current financial needs.