Deposit

A deposit is a placement of money or other valuables (for example, securities) for safekeeping to financial institutions on agreed terms and subject to return to the person who deposited them upon the occurrence of certain conditions. Another meaning of this word is a certain amount paid as collateral for a product, service or delivery.

Understanding a Deposit

The client can invest his own financial resources in commercial bank for a certain period of time. At the same time, the financial institution makes interest deductions for the use and storage of funds, which are added directly to the total amount of the deposit, and can also be transferred to the client’s personal account at his request. The amount of interest and the frequency of their payment, mainly depends on the credit institution and the offered conditions. 

Opening a deposit in a bank is available for both individuals and legal entities. It is worth noting that not only banks are engaged in processing deposits, some credit unions also provide this service, but customers often prefer to create deposits in trusted banks. In some cases, in order to create some form of a financial account, banks may require their clients to open a minimum deposit.

A bank deposit that is liquid and allows the client to use his money instantly without any delay is called transaction deposit.

In addition, a definition of deposit may have the meaning of making an advance payment in the form of a receiving a specific amount of money before the execution of a contract or the provision of services. 

Two types of Deposits 

The bank deposit is represented by two common types. The first type is a demand deposit, essentially being an ordinary bank account with a saving function and allowing the client to withdraw money at any time he wants.

Another one is a time deposit, which means keeping funds for a specified period of time and having a fixed interest rate in most cases. The popular example of this type is a certificate of deposit (CD). The interest rate here is significantly higher than on the first type of deposit.

A Deposit use

The real estate sector is a sphere where deposits are actively used. For instance, the security deposit is usually needed to cover a potential harm that might be caused to a rented property over the use period. At the end of the rental period, this deposit can be returned to the renter if the owner has no claim for him.

A deposit sometimes uses as an advance payment. It is required by the company in the form of a fixed percentage of the total cost of the goods when the customer makes any significant purchase, often with payment schedules.