DEFINITION of 'Deposit'

A deposit can be one of two things:

1. A transaction involving a transfer of funds to another party for safekeeping.

2. A portion of funds that is used as security or collateral for the delivery of a good.


Loading the player...


1. A transaction involving a transfer of funds to another party for safekeeping.

This type of deposit is identical to the money an investor transfers into a bank's savings or checking accounts. It can be made by individuals or entities such as corporations. The money is still owned by the person or entity that deposited the money, and it can be withdrawn at any time, transferred to another person's account, or used to purchase goods. Often, a person must deposit a certain amount of money in order to open a new bank account, which is known as a minimum deposit. This amount covers the costs associated with opening and maintaining the account.

Depositing money into a typical checking account qualifies as a transaction deposit, which means that the funds are immediately available and liquid, without any delays.

The exception to this rule is a time deposit, also known as a term deposit or a certificate of deposit (CD), which is a savings account that restricts withdrawals within a certain time period. This time period varies from 30 days to around five years. In most cases, the depositor must give notice prior to withdrawing funds before the time limit expires, and there are fees for doing so.

Interest on Deposits

When money is deposited into a banking account, it earns interest. This means that, at fixed intervals, a small percentage of the account's total is added to the amount of money already in the account. Interest can be compounded at different rates and frequencies depending on the bank or institution, so it's a good idea to look around for the best interest rates before committing to a savings account. Time deposits, CDs, and other accounts that restrict withdrawals offer a higher interest rate, which allows you to save more money, more quickly.

2. A portion of funds that is used as security or collateral for the delivery of a good.

Some contracts require a percentage of funds to be transferred before delivery as an act of good faith. An example is the initial margin deposit required for entering into a new futures contract.

Deposits are also required on many large purchases for which payment plans are required, such as real estate or vehicles. These deposits, set at a certain percentage of the full purchase price, are more commonly known as down payments, and they prove that you fully intend to follow through with the purchase. In the case of rentals, this is known as a security deposit, and it covers the costs of any potential damages done to the property during the rental period, and it is often refundable if the property is returned in good condition.

  1. Depository

    On the simplest level, depository is used to refer to any place ...
  2. Core Deposits

    The deposits made in a bank's natural demographic market. Banks ...
  3. 3-6-3 Rule

    Slang used to refer to an "unofficial rule" under which the banking ...
  4. Savings Account

    A deposit account held at a bank or other financial institution ...
  5. Credit Union

    Member-owned financial co-operative. These institutions are created ...
  6. Swap

    A derivative contract through which two parties exchange financial ...
Related Articles
  1. Professionals

    Common Interview Questions for Bank Tellers

    Discover some of the most common questions asked of applicants for bank teller positions and the best answers with which applicants can respond.
  2. Credit & Loans

    6 Ways to Load Your Walmart Money Card

    Discover the six main ways to reload funds onto a Walmart MoneyCard and the benefits and fees on each of the four types of cards offered.
  3. Credit & Loans

    Walmart MoneyCard Vs. Walmart Credit Card

    Discover how the Walmart MoneyCard and the Walmart credit card have different benefits that may influence your decision on which one to choose.
  4. Fundamental Analysis

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  5. Budgeting

    Layaway Plans: Get The Goods Without Going Into Debt

    If using a layaway plan keeps you from having to use your credit card, it could be a smart move.
  6. Options & Futures

    An Introduction To Managed Futures

    Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
  7. Options & Futures

    Demystification Of Bank Accounts

    Find out which type of account suits your specific needs.
  8. Savings

    Top 5 Reasons Banks Won't Cash Your Check

    Learn the top reasons that a bank won't cash your check, and find out what steps you can take to prevent those scenarios from happening.
  9. Savings

    How Americans Can Open a Bank Account In Thailand

    Have your paperwork in order and be sure to shop around.
  10. Options & Futures

    Terrorism's Effects on Wall Street

    Terrorist activity tends to have a negative impact on the markets, but just how much? Find out how to take cover.
  1. How does NetSpend overdraft protection work?

    NetSpend offers overdraft protection that allows the account holder to make transactions or incur fees with amounts that ... Read Full Answer >>
  2. What do states do with unclaimed property?

    Unclaimed property refers to personal accounts in financial institutions or companies that have had no activity and whose ... Read Full Answer >>
  3. How long does a stock account have to be dormant before it can be escheated?

    A stock account is typically considered dormant and eligible for escheatment after five years of inactivity; however, this ... Read Full Answer >>
  4. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  5. Do banks have working capital?

    The concept of working capital does not apply to banks since financial institutions do not have typical current assets and ... Read Full Answer >>
  6. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center