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Deposit Account: 1 Major Types

A deposit account allows customers to deposit and withdraw money from a bank. When a customer deposits money, the bank records the deposit as a liability that it owes the customer. The bank can then use most of the deposited funds to issue loans and earn interest. Common types of deposit accounts include checking/current accounts for frequent transactions, savings accounts that earn interest but have limited withdrawals, and time deposits that cannot be withdrawn for a preset period. Deposit accounts are regulated to reduce bank failure risks and may have deposit insurance.

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47 views3 pages

Deposit Account: 1 Major Types

A deposit account allows customers to deposit and withdraw money from a bank. When a customer deposits money, the bank records the deposit as a liability that it owes the customer. The bank can then use most of the deposited funds to issue loans and earn interest. Common types of deposit accounts include checking/current accounts for frequent transactions, savings accounts that earn interest but have limited withdrawals, and time deposits that cannot be withdrawn for a preset period. Deposit accounts are regulated to reduce bank failure risks and may have deposit insurance.

Uploaded by

deepak
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Deposit account

Deposits redirects here. For other uses, see Deposit


(disambiguation).

A money deposit at a banking institution that


cannot be withdrawn for a preset xed 'term' or
period of time. When the term is over it can be
withdrawn or it can be rolled over for another
term. Generally speaking, the longer the term
the better the yield on the money.

A deposit account is a savings account, current account


or any other type of bank account that allows money to
be deposited and withdrawn by the account holder. These
transactions are recorded on the banks books, and the resulting balance is recorded as a liability for the bank and
represents the amount owed by the bank to the customer.
Some banks may charge a fee for this service, while others may pay the customer interest on the funds deposited.

Call deposit
A deposit account that allows for the withdrawal of funds without penalty, generally
without notication to the bank. Often it bears
a favourable interest rate, but also requires a
minimum balance to take advantage of the benets [1]

Major types
Transactional account
Current account (Commonwealth)/Checking account (US)

2 Legal framework
In banking, the verbs deposit and withdrawal mean
a customer paying money into, and taking money out of,
an account. From a legal and nancial accounting standpoint, the noun deposit is used by the banking industry
in nancial statements to describe the liability owed by
the bank to its depositor, and not the funds that the bank
holds as a result of the deposit, which are shown as assets
of the bank.

A deposit account held at a bank or other nancial institution, for the purpose of securely and
quickly providing frequent access to funds on
demand, through a variety of dierent channels. Because money is available on demand
these accounts are also referred to as demand
accounts or demand deposit accounts, except
in the case of NOW Accounts.

Subject to restrictions imposed by the terms and conditions of the account, the account holder (customer) retains the right to have the deposited money repaid on demand. The terms and conditions may specify the methods
by which a customer may move money into or out of the
account, e.g., by cheque, internet banking, EFTPOS or
other channels.

Money market account


A deposit account that pays interest, and for
which short notice (or no notice) is required for
withdrawals. In the United States, it is a style of
instant access deposit subject to federal savings
account regulations, such as a monthly transaction limit.

For example, a depositor opening a checking account at


a bank in the United States with $100 in cash surrenders
legal title to the $100 in cash, which becomes an asset
of the bank. On the banks books, the bank debits its
currency and coin on hand account for the $100 in cash,
and credits a liability account (called a demand deposit
account, checking account, etc.) for an equal amount.
(See double-entry bookkeeping system.)

Savings account
Accounts maintained by retail banks that pay
interest but can not be used directly as money
(for example, by writing a cheque). Although
not as convenient to use as checking accounts,
these accounts let customers keep liquid assets
while still earning a monetary return.

In the audited nancial statements of the bank, the $100


in currency would be shown on the balance sheet as an
asset of the bank on the left side, and the deposit account
would be shown as a liability owed by the bank to its customer, on the right side of the balance sheet. The banks
nancial statement reects the economic substance of the

Time deposit
1

transactionwhich is that the bank has borrowed $100


from its depositor and has contractually obliged itself to
repay the customer according to the terms of the agreement. To oset this deposit liability, the bank now owns
the funds deposited (either in notes and coin or more usually as a debt owed by another bank) and the bank shows
those funds as an asset of the bank. These physical reserve funds may be held as deposits at the relevant central
bank and will receive the interest as per monetary policy.
Typically, an account provider will not hold the entire
sum in reserve, but will loan most of the money out to
other clients, in a process known as fractional-reserve
banking. This allows providers to earn interest on the asset and hence to pay out interest on deposits.
By transferring the ownership of deposits from one party
to another, banks can avoid using physical cash as a
method of payment. Commercial bank deposits account
for most of the money supply in use today. For example,
if a bank in the United States makes a loan to a customer
by depositing the loan proceeds in that customers checking account, the bank typically records this event by debiting an asset account on the banks books (called loans receivable or some similar name) and credits the deposit liability or checking account of the customer on the banks
books. From an economic standpoint, the bank has essentially created economic money (although not legal tender). The customers checking account balance has no
dollar bills in it, as a demand deposit account is simply
a liability owed by the bank to its customer. In this way,
commercial banks are allowed to increase the money supply (without printing currency, or legal tender).

Regulatory protection

Main article: Banking regulation


Banks are normally subject to prudential regulation which
has the purpose of reducing the risk of failure of the bank.
It may also have the purpose of reducing the extent of
depositor losses in the event of bank failure.
Main article: Deposit insurance
Bank deposits may also be insured by a deposit insurance
scheme, if applicable.

See also
Sweep account
Trading account assets

REFERENCES

5 References
[1] Call Deposit, http://www.deposits.org, accessed 201205-14.

Text and image sources, contributors, and licenses

6.1

Text

Deposit account Source: https://en.wikipedia.org/wiki/Deposit_account?oldid=742551709 Contributors: Heron, Pnm, Theresa knott,


NeoJustin, EugeneZelenko, Jerryseinfeld, 3mta3, Hooperbloob, Crosbiesmith, Mindmatrix, Lmatt, Roboto de Ajvol, RussBot, Nirvana2013, MarkSG, Mkill, Black Falcon, Airodyssey, Kungfuadam, Sardanaphalus, SmackBot, Lawrencekhoo, Simon123, Famspear,
COMPFUNK2, MatthewKarlsen, ThurnerRupert, Xandi, General Ization, Rigadoun, Slakr, KurtRaschke, Hu12, CapitalR, CmdrObot,
Rouis.k, Cydebot, Skittleys, Siggis, AntiVandalBot, JAnDbot, Bongwarrior, Rivertorch, MartinBot, STBot, VolkovBot, Philip Trueman,
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KH-1, CAPTAIN RAJU, Ye linkar, Gurmitsingh1, A.S.Medical Agencies and Anonymous: 89

6.2

Images

File:Ambox_globe_content.svg Source: https://upload.wikimedia.org/wikipedia/commons/b/bd/Ambox_globe_content.svg License:


Public domain Contributors: Own work, using File:Information icon3.svg and File:Earth clip art.svg Original artist: penubag

6.3

Content license

Creative Commons Attribution-Share Alike 3.0

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