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This article has been tagged since June 2007. A deposit account is an account at a banking institution that allows money to be held on behalf of the account holder. Some banks charge a fee for this service, while others may pay the client interest on the funds deposited. “Banker†redirects here. ...
In finance, interest has three general definitions. ...
The account holder retains rights to their deposit, although restrictions placed on access depend upon the terms and conditions of the account and the provider.
The banking terms "deposit" and "withdrawal" actually tend to obscure the economic substance and legal essence of transactions in a deposit account. From a legal and financial accounting standpoint -- and as counter-intuitive as it may seem -- the term deposit is actually used by the banking industry in financial statements to describe the liability owed by the bank to its depositor, and not the funds (whether cash or checks) themselves, which are shown an asset of the bank. For example, a depositor opening a checking account at a bank in the United States with $100 in currency surrenders legal title to the $100 in cash, which becomes an asset of the bank. On the bank's 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.) In the audited financial statements of the bank, on the balance sheet, the $100 in currency would be shown as an asset of the bank on the left side of the balance sheet, 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 bank's financial statement reflects the economic substance of the transaction -- which is that the bank has actually borrowed $100 from its depositor and has contractually obliged itself to repay the customer according to the terms of the demand deposit account agreement. To offset this deposit liability, the bank now owns the actual, physical funds deposited, and shows those funds as an asset of the bank. In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e. ...
In accountancy, the double-entry bookkeeping (or double-entry accounting) system is the basis of the standard system used by businesses and other organizations to record financial transactions. ...
Typically, an account provider will not hold the entire sum in reserve, but will loan the money out at interest to other clients, in a process known as fractional-reserve banking. It is this process which allows providers to pay out interest on deposits. Fractional-reserve banking refers to the common banking practice of issuing more money than the bank holds as reserves. ...
By transferring the ownership of deposits from one party to another, they can replace physical cash as a method of payment. In fact, 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 the customer's checking account, the bank typically accounts for this event by debiting an asset account on the bank's books (called loans receivable or some similar name) and credits the deposit liability or checking account of the customer on the bank's books. From an economic standpoint, the bank has essentially created "economic money" (although obviously not legal tender). The customer's 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). This article or section does not cite any references or sources. ...
Legal tender or forced tender is payment that cannot be refused in settlement of a debt denominated in the same currency by virtue of law. ...
Regulatory protection
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Depending on governmental restrictions, the funds in the account are insured, in the event the financial institution is forced to close or goes bankrupt. This type of protection is also offered in the event the institution or the account holder are defrauded, provided all the necessary measures had been taken to prevent unauthorized access. Explicit Deposit insurance is a measure introduced by policy makers in many countries to protect deposits, in full or in part, in the event of a run on a bank or banks. ...
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. ...
Types of deposit account It has been suggested that this article or section be merged with Current account (banking). ...
The examples and perspective in this article or section may not represent a worldwide view. ...
A time deposit (also known as a term deposit, particularly in Australia and New Zealand) is a money deposit at a bank that cannot be withdrawn for a certain term or period of time. ...
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