What is a deposit?

Views 26KAug 9, 2023

Core points

● A deposit is money held in a bank or other financial institution.

● Current accounts and term deposits are the most basic types of deposits.

● Some large deposit books can be traded on the secondary market, which helps promote the full marketization of deposit interest rates.

Conceptual understanding

In financial terms, a deposit is money that an enterprise or individual temporarily stores funds or money in a bank or other financial institution under the condition that ownership is retained.

Types of deposits

There are two main types of deposits: current accounts and term deposits.

A current account is a traditional way of saving money that allows you to deposit and withdraw funds in a deposit account at any time.

A term deposit is a deposit with a fixed term, and a fixed interest rate is usually agreed upon at the time of deposit.

If there are no special circumstances, term deposits cannot be withdrawn in advance, or when early withdrawals are made, they are settled only according to current deposit interest rates.

On the basis of time deposits, banks can also provide proof of deposit. This is also a form of deposit, but early withdrawals are generally not allowed.

The role of deposits

Under normal circumstances, the biggest effect of a deposit is to receive interest income.

However, there are now negative interest rates in some countries, so not only do deposits have no interest income, but principal may also shrink.

Also, in some countries, large deposit certificates are derived in the form of certificates of deposit (CD), and specific large deposit certificates can be freely traded in the secondary market.

Large-value deposit transactions help form a comprehensive market-based development of deposit interest rates, encourage banks to expand market-based pricing systems for debt products in an orderly manner, exercise the pricing capabilities of financial institutions, and enhance secure investment channels.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.