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What is a deposits in the United States

04.06.2021
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6 min.

The definition of a deposit

This is a transaction that involves funds transfer to another party with the purpose of their storage. In financial environment deposits can refer to a sum of money held or deposited at a bank account, usually in order to receive percentage. It can also be considered as a part of money unitized as a collateral or to secure goods delivery.

What is a deposits in the United States

Deposits' types and examples

Here are some widespread deposits' examples:

Cash deposit

It can be used in case cash is withdrawn from an ATM or a cash register and needs to be added to a current or savings account.

Guarantee deposits

Such a deposit is typically paid for an apartment rent. That means the funds are kept by the landlord in case something has been damaged or disappeared within the rental period.

On-demand deposit

Current account deposits are available upon a holder's demand. They are also named as checking accounts.

Safekeeping account

Bank accounts providing the possibility to contribute and also withdraw funds are named deposit accounts and they can also be current, savings or money market ones along with deposit receipts.

Certificate of deposit

This is a deposit of a fixed-term made to a bank for a certain time period and a predetermined interest amount. Upon a certificate of deposit's expiry a client receives the deposit back together with the percentage earned. This type is also sometimes referred to accounts of term deposit.

FDIC insured deposit

In case of a bank's bankruptcy deposits are insured by the US government. The majority is insured for the sum to $ 250,000 for 1 depositor. NCUSIF insures deposits made in credit unions that is as safe as FDIC in terms of insurance.

The ways deposits work

They have 2 different meanings. One type involves funds transferring to another party for the purpose of safekeeping. In this case, a deposit means money transferred by an investor to a savings or running account.

Note! Thus, the money deposited are still the possession of the individual or legal entity making the deposit. The funds can be withdrawn, redirected to another account or utilized for goods purchasing at any time.

It is a frequent case when a client has to deposit a definite sum in order to set up a new bank account and thus, making a minimum deposit. Contributing money into a current account is considered as a transactional deposit meaning that funds are immediately available and transferrable with no delay.

Another definition of a deposit is applied to the case when a part of funds is utilized as a collateral or security for goods delivery. Sometimes interest is required to be paid prior to delivery as a bona fide deed. For instance, generally traders who cooperate with brokerage companies are claimed to make initial margin deposits in order to have access to a new futures contract.

How to make a deposit

Funds can be deposited to an account in several means. They include:

Personally: a client can visit a bank branch and give cash or cheques to a cashier who will credit an account. For extra comfort, this procedure can also be conducted at ATMs providing such service. Typically, it is necessary to visit an office or use an ATM owned by the bank. In addition, members of credit unions are frequently allowed to apply for another credit union in order to make deposits provided both unions belong to a common branch.

While cash or cheques are being deposited a client usually needs to fill in a specific form. This form will provide the bank with the information where the money will be contributed and also the transaction records. Additionally any receipts have to be validated by signing the reverse side and adding any data required.

When depositing through an ATM, no receipts are required provided the scanning technology is implemented in the ATM in order to capture a receipt's image. However, the ATM instructions should be followed carefully as some still require deposit receipts.

Electronically: in case an employer pays a salary by direct depositing, the funds are forwarded to a worker's bank account and no action is required from the worker. In some cases, money can even be utilized prior to a regular paper cheque's delivery.

By mail: paper cheques or money orders can be sent by mail. A client needs to clarify the address for the fastest service and inquire any other requirements. It should be kept in mind that sending cash by mail is legal but it most likely will not be got back in case of lost or stolen. However, a disappeared cheque can be terminated upon a client's request.

Funds accessibility

Sometimes after making deposits clients may have to wait till they can use their money.

Note! Regarding the way of funds adding to an account, a bank may set a time lag to ensure no problems with the deposit like a cheque returning, etc., have occurred.

The longest waiting period is applied to private cheques while government ones as well as bank remittance to an account become available much faster.

For specifying the duration of the waiting period a client should appeal to a cashier or support service regarding the bank's accessibility policy. In some cases, such time lag is able to protect funds that means if the money have been spent from the deposit that turned out to be an unbeneficial option the client will have to return the funds to the bank and in the meantime can withdraw cheques and bear penalties.

A deposit sample

Having deposits may be necessary for many large purchases like real estate or a vehicle, in other words, for which sellers require plans of payment. These deposits are usually charged at a certain percentage of the full purchasing price by financial companies and individuals generally refer to them as upfront payments.

Attention! Security deposits are used for lease. The collateral's function is to redeem any expenses regarding any potential damage to rental assets or property that appeared with the rental period. Either partial or full refund is applied upon the property or asset verification when the lease period expires.

Reasons to have a deposit

Having a deposit can be a useful tool for definite businesses like real estate or rentals, or as a form of collateral for car rentals. A collateral can also be required in case the sale process is delayed or the goods or services final delivery will be implemented at a later date.

The issue of requiring a deposit upon sale is at the seller's discretion. For instance, obtaining a collateral may enable the seller to feel more calm in case the selling process seems particularly risky because of a high volume or other circumstances.

Thus, a collateral acts as a security for the total amount of the sale, providing confidence.

Deposits are most commonly utilized if there are valuable assets provided for use by a buyer or tenant, or to secure in case a product's or service's delivered at a later date. Thus, a deposit guarantees an additional security layer for a seller through signing an obligatory, frequently non-refundable full payment contract upon the sale completion.

A deposit or a down payment

The terms "deposit" and "down payment" are often used as synonyms but in many cases this is actually not the case.

A deposit is an advance payment made prior to the sale completion while a down payment is the amount generally paid during the sale that is indeed an initial sum and the rest is financed by a loan or a mortgage.

In many cases when deposits are applied this sum turns to a down payment part or is applied to the entire amount's payment.

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