What Is a Transaction Deposit?

A transaction deposit is a bank deposit that has immediate and full liquidity, with no delays or waiting periods. Transaction deposits can be used for other transactions at the request of the account holder. A checking account, for example, is a common transaction deposit account and the account holder is allowed to withdraw the amount at any time. A savings account is an example of a non-transaction account.

Key Takeaways

  • A transaction deposit is a deposit made to a transaction account, such as a checking account.
  • Transaction accounts are liquid, so the money that has been deposited is available instantly upon request.
  • Non-transaction accounts, by comparison, are not fully liquid. Withdrawals of non-transaction deposits may require some notice or a waiting period.
  • Under the Federal Reserve's Regulation D, transaction accounts must meet a positive reserve requirement.

Understanding Transaction Deposits

Transaction deposits stand in contrast to non-transaction deposits, which are time deposits. Non-transaction deposits have waiting periods and monthly limitations on the number of transactions allowed.

According to the Federal Reserve's Regulation D, savings accounts may require that the depositor give seven days' notice before withdrawing funds from the institution. In practice, however, banks typically do not enforce this policy. To qualify as a savings account, however, "convenient transactions" must be limited to six per month. Banks are required to keep sufficient reserves to cover deposit transactions. Time deposits, such as savings accounts and certificates of deposit, have lower reserve requirements.

Regulation D "sets reserve requirements on certain deposits and other liabilities of depository institutions solely for the purpose of implementing monetary policy. " Currently, transaction accounts are the only category of deposit that has to meet a positive reserve requirement under Regulation D.

Example of Transaction Deposits

Funds in a checking account are examples of transaction deposits because they can be used for daily expenses or withdrawn from an account. In contrast, time-based deposits, such as a certificate of deposit, are examples of non-transaction deposits because they cannot be transferred or withdrawn at a moment's notice.