Whether you want to deposit Binomo, have a check deposited into your account, or just want to hold some cash in your hand, the word deposit generally comes up quite a bit. So, what is the deposit? What are the different types of deposits? And how do they work? This article will answer all those questions and more.

What Is a Bank Deposit?

A deposit is simply defined as money put into a financial institution for safekeeping. When you make a deposit, whether it’s in a bank, credit union, or brokerage firm, you are essentially entrusting that organization with your money. In return, the institution agrees to keep your money safe and to pay you interest on the deposit, if applicable.

A bank deposit is created when you put money into a savings or checking account. The funds become part of the bank’s reserves, and you are typically paid interest on the deposit.

Types of Deposits

There are two main types of deposits. They include:

Time Deposits

Also known as certificates of deposit (CDs), time deposits are savings accounts with a set term. The money deposited into a CD cannot be withdrawn for the length of the term, which can range from a few months to several years.

Time deposits typically have higher interest rates than savings accounts because the money is not readily available. This means the bank can use your money to make loans and earn interest on those loans.

Demand Deposits

Demand deposits are checking accounts that allow customers to withdraw money anytime. The funds in a demand deposit account are considered part of the bank’s reserves and can be used to make loans.

While there is no set term for a demand deposit, the account may have certain restrictions, such as a limit on the number of withdrawals per month.

Bank Deposits Explained

To better understand bank deposits, lets look at the different types of bank accounts.

Checking Accounts

A checking account is a type of demand deposit. This account allows customers to write checks or withdraw using a debit card. The funds in a checking account are part of the bank’s reserves and can be used to make loans.

This account works best for people who need easy access to their money and don’t mind keeping a minimum balance.

Savings Accounts

A savings account is another demand deposit account. This account allows customers to save money and earn interest on the balance. The funds in a savings account are also part of the bank’s reserves and can be used to make loans.

This account works best for people who want to grow their savings and don’t need immediate access to the funds.

Federal law limits the number of withdrawals or transfers from a Savings Account to six (no more than three of which can be by check, draft, debit card, or similar order payable to third parties). Even though this law was suspended by the Federal Reserve, banks may still impose their own limits.

Certificates of Deposit (CDs)

A CD is a type of time deposit. It’s a savings account with a set interest rate and term. That means you agree to keep your money in the account for a specific period of time, such as six months, one year, or two years. In return, the bank agrees to pay you interest at the end of the term. CDs are insured by the FDIC up to $250,000 per depositor, per bank.

You can cash in your CD before the end of the term, but you usually have to pay a penalty. That’s because breaking the agreement means the bank can’t count on that money being there to lend out for the agreed-upon time period.

The interest rate on a CD is usually higher than in a savings account. That’s because you’re agreeing to keep your money in the account for a set period of time. The longer the term, the higher the interest rate. But if you need to cash in your CD before the end of the term, you may get less money back than you originally deposited.

Money Market Accounts (MMAs)

A money market account is a type of savings account that usually has a higher interest rate than a regular savings account. To get that higher rate, though, you must agree to keep a minimum amount of money in the account and sometimes make fewer withdrawals than a regular savings account.

An MMA also may require you to keep your money in the account for a set period of time, such as six months or a year. But unlike with a CD, you can withdraw your money without paying a penalty.

The interest rate on an MMA may change if the Federal Reserve raises or lowers short-term interest rates. But the rate usually doesn’t change as much as it does with other types of accounts, such as savings accounts.

Bottom Line

By understanding bank deposits, you can make the best decision for your needs. Whether you want easy access to your money or a higher interest rate, there’s a bank deposit account that’s right for you. Just be sure to shop around and compare options before making a final decision.

Write and Win: Participate in Creative writing Contest & International Essay Contest and win fabulous prizes.