What Is a Deposit? Definition, Meaning, Types, and Example

A deposit is cash held in a checking account or with one other monetary establishment that requires a switch from one celebration to a different. A deposit can can be the amount of cash used as safety or collateral for supply of products or companies.

Key Takeaways

  • A deposit usually refers to cash held in a checking account.
  • A deposit can be the funds used as safety or collateral for the supply of products or companies.
  • A requirement deposit account is actually a checking account in which you’ll be able to withdraw funds at any time.
  • A time deposit account normally requires that you just maintain your funds within the account a sure period of time or face a payment for withdrawal.

How a Deposit Works

A deposit is actually your cash that you just switch to a different celebration, comparable to whenever you transfer funds right into a checking account at a financial institution or credit score union.

Within the case of depositing cash right into a checking account, the cash nonetheless belongs to your and your can withdraw the cash at any time, switch it to a different particular person’s account, or use the cash to make purchases.

Typically, you will need to deposit a sure amount of cash, known as the “minimal deposit,” to open a brand new checking account. Depositing cash right into a checking account qualifies as a transaction deposit, which implies that the funds are instantly obtainable and liquid, and you may withdraw them with out delays.

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The opposite definition of deposit is when a portion of funds is used as a safety or collateral for the supply of . Some contracts require a proportion of funds paid earlier than the supply as an act of fine religion. For instance, brokerage corporations usually require merchants to make an preliminary margin deposit to enter into a brand new futures contract.

If you deposit cash into some financial institution accounts, it will possibly earn curiosity. Because of this, at mounted intervals, a small proportion of the account’s whole is added to the amount of cash already within the account. Curiosity can compound at totally different charges and frequencies, relying on the phrases of the financial institution.

Forms of Deposits 

There are two essential kinds of deposits: demand and time.

  • Demand deposit: A requirement deposit is a standard financial institution and financial savings account. You’ll be able to withdraw the cash anytime from a requirement deposit account with out advance discover. 
  • Time deposits: Time deposits are these with a hard and fast time and normally pay a hard and fast rate of interest, like a certificates of deposit (CD). These interest-earning accounts supply larger charges than financial savings accounts. Nonetheless, time deposit accounts require that cash be saved within the account for a set time frame. 

Instance of a Deposit 

Deposits are sometimes required on many massive purchases, comparable to actual property or autos, for which sellers require cost plans. Financing firms sometimes set these deposits at a sure proportion of the total buy value. A down cost on a house is actually a deposit.

You will have to pay a deposit in lots of rental eventualities, whether or not your are renting an house, automobile, or one other product. The deposit is known as the safety deposit. A safety deposit’s operate is to cowl any prices related to any potential injury performed to the property or asset rented through the rental interval. A partial or a complete refund is utilized after the property or the asset is verified on the finish of the rental interval.

Does Each Deposit Made to a Financial institution Earn Curiosity?

Not all deposits to checking account earn curiosity. Curiosity is set by the phrases of the account. Many checking accounts don’t present curiosity, whereas most financial savings accounts and certificates of deposit (CDs) do.

Can I Make a Deposit Utilizing a Examine From One other Financial institution?

You may make a deposit with a verify from one financial institution to a different. Most banks will take deposits within the type of money, checks, cash orders, or cashier’s checks. In case you’re utilizing a verify to open an account, there could also be a holding interval as the brand new financial institution ensures the verify will clear.

After I Place a Deposit for Items or Companies, Do I Get the Cash Again?

This depends upon your settlement. In lots of rental agreements, a safety deposit is held to make sure that there is no such thing as a injury to a property. This may occasionally even be the case in renting tools. The deposit could also be returned if the merchandise or house is returned in the identical situation. For different gadgets, a deposit could also be used a partial cost on the stability due.

The Backside Line

A deposit in finance is often whenever you switch cash to a checking account like a checking account for safekeeping. Nonetheless, it will possibly produce other meanings as properly. For instance, you could want to put a deposit, or a sure amount of cash, with a enterprise to safe items or companies comparable to for a rental.