Deposit

Deposit refers to the act of placing money into a bank account or financial institution, as well as the amount of money placed into such accounts.
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Updated on Jun 10, 2024
Reading time 4 minutes

In this guide

3 key takeaways

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  • A deposit can be money placed in savings, checking, or other types of accounts at a financial institution.
  • Deposits are typically insured by government agencies, providing safety and security for the depositor’s funds.
  • Deposits can earn interest, depending on the type of account and the terms set by the financial institution.

What is a deposit?

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A deposit is the act of placing money into a bank account or other financial institution. It can also refer to the amount of money that has been placed into the account. Deposits are a fundamental component of personal and business finance, providing a secure way to store money, earn interest, and facilitate transactions. Deposits can be made into various types of accounts, including checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts.

Types of deposits

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  • Demand Deposits: These are deposits that can be withdrawn at any time without prior notice, such as funds in checking accounts. They offer high liquidity and are used for everyday transactions.
  • Time Deposits: Also known as term deposits, these funds are deposited for a fixed period and cannot be withdrawn before the end of the term without incurring penalties. Certificates of Deposit (CDs) are a common example.
  • Savings Deposits: These are deposits made into savings accounts, which typically earn interest over time and offer limited transaction capabilities compared to checking accounts.
  • Recurring Deposits: These are a type of time deposit where the depositor makes regular, fixed contributions over a specified period, and the total amount is paid back with interest at maturity.

Features and benefits of deposits

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  • Safety and Security: Deposits in banks and financial institutions are generally insured by government agencies (like the FDIC in the United States), protecting depositors against bank failures up to a certain limit.
  • Interest Earnings: Depending on the type of deposit account, funds may earn interest, helping depositors grow their money over time.
  • Liquidity: Deposits in demand accounts, such as checking accounts, offer high liquidity, allowing depositors to access their funds easily for transactions and withdrawals.
  • Financial Management: Deposit accounts help individuals and businesses manage their finances, save for future goals, and plan for expenses.

How to make a deposit

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  • Bank Branch: Depositors can visit a bank branch and deposit funds directly with a teller or through an ATM.
  • Direct Deposit: Many employers offer direct deposit services, where paychecks are automatically deposited into an employee’s bank account.
  • Online Banking: Depositors can transfer funds electronically using online banking services or mobile banking apps.
  • Mail Deposit: Some banks allow deposits by mail, where depositors send checks to the bank for processing.

Examples and applications

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Example:

A person receives their monthly salary and deposits it into their checking account via direct deposit. They then transfer a portion of their salary into a savings account to earn interest and keep the rest in the checking account for daily expenses.

Applications:

  • Personal Finance: Individuals use deposit accounts to manage income, pay bills, save for future needs, and earn interest.
  • Business Finance: Businesses use deposit accounts to handle cash flow, make payments, manage payroll, and save for investments.
  • Financial Planning: Financial advisors recommend different types of deposit accounts to help clients achieve their financial goals, such as saving for retirement or building an emergency fund.
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For further reading, consider exploring the following topics:

  • Savings Accounts: A detailed look at how savings accounts work and their benefits.
  • Checking Accounts: Understanding the features and uses of checking accounts for daily transactions.
  • Certificates of Deposit (CDs): Exploring the benefits and drawbacks of time deposits like CDs.
  • Interest Rates: How interest rates are determined and their impact on different types of deposit accounts.

Understanding deposits is essential for effective financial management, providing a secure way to store funds, earn interest, and facilitate various financial transactions.


Sources & references

Arti

Arti

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Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000 Invezz related data points, has read every piece of research, news and guidance we\'ve ever produced, and is trained to never make up new...