What Is an Account?

In banking, an account refers to an arrangement by which an organization, typically a financial institution such as a bank or credit union, accepts a customer's financial assets and holds them on behalf of the customer at his or her discretion. Types of accounts include savings accounts, which are designed to help customers accumulate liquid assets; checking accounts, which make it easier for customers to use liquid assets to pay debts and buy goods and services; and retirement accounts, which allow customers to earn higher interest rates on money saved and invest for old age.

Key Takeaways

  • In banking, an account refers to an arrangement by which an organization, typically a financial institution such as a bank or credit union, accepts a customer's financial assets and holds them on behalf of the customer at his or her discretion.
  • Today, people open transaction (checking), savings and other bank accounts in order to more securely manage liquid assets, as assets held in accounts with a financial institution are less vulnerable to theft than cash and are insured by the Federal Deposit Insurance Corporation (FDIC) in the United States.
  • Many people also use credit accounts to borrow money for major and minor purchases. Common credit accounts include revolving credit accounts, like credit cards and lines of credit, and installment loan accounts like car loans or mortgages. Financial institutions charge account holders interest for the privilege of borrowing money in this manner.

"Account" can also refer to a statement summarizing the record of transactions in the form of credits, debits, accruals, and adjustments that have occurred and have an effect on an asset, equity, liability, or past, present or future revenue.

"Account" can also refer to a brokerage account, which holds customer assets at a licensed brokerage firm. In this type of account, an investor deposits money or other assets and the broker places trades on behalf of the client.

Understanding an Account

The Knights Templar were the first to hold assets on behalf of others and make loans on those assets. As such, the Knights Templar are credited with creating the foundations of today's banking system. Accounts were first created so that people could borrow to travel to the Holy Land and hold and amass wealth that was often stolen during the Crusades.

Today, people open transaction (checking), savings and other bank accounts in order to more securely manage liquid assets, as assets held in accounts with a financial institution are less vulnerable to theft than cash and are insured by the Federal Deposit Insurance Corporation (FDIC) in the United States. Bank accounts allow holders to write checks or use debit or ATM cards to make purchases and cash withdrawals against the balance in the account.

Many people also use credit accounts to borrow money for major and minor purchases. Common credit accounts include revolving credit accounts, like credit cards and lines of credit, and installment loan accounts like car loans or mortgages. Financial institutions charge account holders interest for the privilege of borrowing money in this manner.

Example of an Account

A customer looking for the flexibility of depositing cash and making purchases and payments for goods and services will open up a checking account at a financial institution. This checking account has many advantages compared to holding money in her possession, including higher security, electronic access to funds, bill payment options, & much more.

Account Statements

This statement of transactions is the record of the growth and development, or the shrinking and amortization, of almost anything quantifiable. Financial institutions issue account statements to holders on a regular basis; these contain a summary of debits and credits within a given statement period. Countries, corporations and other entities use financial accounts, current accounts, capital accounts, and others to measure and track payments, transfers, trade, and assets of all kinds, including liquid assets, trademarks, drilling rights, intellectual property, goods produced and more.