The Role of Fixed Deposits in Funding Your Child’s Education

As parents, we all want to provide the best possible education for our children. However, financing their dreams can be a significant challenge with the rising costs of professional and international courses. Little wonder why half of Indian children don’t have access to quality education. This is where Fixed Deposits (FDs) could help. Sending a child for higher education requires meticulous financial planning due to the substantial commitment involved. 

Tuition fees, accommodation costs, and other living costs can easily amount to several crores. Parents can create a financial cushion that aligns with their child's educational aspirations by strategically allocating funds to FDs. Whether funding a domestic professional course or an international degree, meticulously investing in FDs ensures systematic wealth accumulation.

How Fixed Deposits Can Help in Funding Your Child’s Education

Here are a few steps you can follow to fund your child’s education with FDs without depending on loans:

1. Understanding the Power of Fixed Deposits

Fixed Deposits have long been regarded as a secure investment option that offers assured returns Unlike more volatile investments like stocks or mutual funds, FDs offer a stable avenue for preserving and growing wealth.

One key advantage of FDs is the assurance of a fixed interest rate during the deposit tenure, giving a predictable and steady income stream. This stability shields FDs from market risks and economic downturns, ensuring the principal amount remains secure.

Additionally, FDs offer flexibility in terms of tenure selection, allowing you to choose the tenure that best suits your financial goals. Long-term FDs can benefit from compounding, ensuring sufficient funds for your child's education.

2. Funding Your Child's Education

One of the most significant expenses parents face is funding their child's education. Whether it's primary, secondary, or tertiary education, the cost continues to rise. Investing in FDs early on allows parents to accumulate funds systematically, ensuring they have the necessary finances to provide their child with quality education without compromising their aspirations.

Let's consider an example. Say you start a fixed deposit for your child's education at ₹20 lakhs. Assuming an interest rate of 6.50% p.a., after 10 years, the total amount would be approximately ₹38,11,200. If you reinvest this amount for another 10 years at the same interest rate, it would grow to approximately ₹72,62,310. This demonstrates the power of compounding and how FDs can significantly grow your investment over time.

3. Building a Corpus for Future Needs

Fixed deposits are reliable for building a corpus to meet future needs. Over the years, parents can accumulate a sum by investing in FDs, providing their children with a solid financial foundation to pursue their dreams and ambitions.

You can spread your FDs into different accounts to maximise on interest rates and benefit from liquidity. The strategy is called FD laddering. You can read more about it here.

4. Teaching Financial Discipline

Introducing children to saving and investing from a young age instils valuable financial discipline. These early lessons lay the groundwork for smart money management and instil lifelong financial habits.

For example, you can open a joint FD account with your child and encourage them to deposit some of their pocket money or earnings. This teaches them about saving and gives them a sense of ownership and responsibility towards their financial future.

5. Creating a Legacy

Investing in FDs secures your child's future and creates a legacy that can be passed down through generations. By building a robust financial portfolio, parents set an example for their children and empower them to continue the tradition of prudent financial management. This legacy of financial stability and foresight becomes a cornerstone for future generations to thrive upon.