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A short introduction to the meaning of deposit and its various types.
The process of banking at its core involves putting away or saving money in a savings account. The bank acts as a safe keeper, allowing you to store your hard-earned money while earning interest on your savings. One of the most frequently used terms in banking is ‘deposit’. So, let’s explore what is deposit and its main types.
A deposit is money that you place in a bank for safekeeping or savings, or that you receive via cheques and other fund transfers. Every time you deposit money or incoming transactions enter your account, it is considered a deposit. The term can also refer to assets held as collateral, such as property papers or fixed deposits used to deposit funds against a loan.
Deposits are broadly classified into two types:
A demand deposit is a general deposit that you make into your bank account. It could simply be a transfer of money to any account – savings, current, salary account, etc. With demand deposits, you can withdraw money from your account at your discretion. For example, if you deposit money to your savings account, you can freely withdraw money from the bank, its ATMs, or while paying for your expenses using the debit card provided by the bank, as and when you need.
A time deposit refers to money you put in the bank for set periods to earn interest. Unlike a demand deposit, you do not have the option of withdrawing money whenever you want to. Your deposit is locked away for a fixed term or time – a Fixed Deposit, for instance. Then there is the Recurring Deposit, wherein you have to deposit a fixed sum for a set period specified time. intervals. The deposit period is a fixed long period, and the bank pays you cumulative or non-cumulative interest based on the type of time deposit you choose. The interest paid on time deposits is higher than what you would earn on your demand deposits like a Savings Account. You can compare savings account interest rates before choosing where to deposit your funds.
When you deposit money in your bank account, you are safeguarding it. The bank promises to pay this money back to you as and when you need it. The deposit is your asset, and the bank owes you the amount you save and pays interest on it. The interest rate differs based on the type of deposit you make. While there are no restrictions on demand deposits, banks may levy penalties for withdrawing a time deposit prematurely.
Deposits are financial instruments where individuals or entities place money with banks or financial institutions to earn interest or access other benefits. Common types of deposits include:
Bank deposits help you grow your money gradually. They teach the discipline of saving money. You can start with demand deposits money into a savings account to earn interest and gradually create time deposits with the lump sum saved in your account.
Open digital account with DBS Bank today and start earning up to 5% p.a. interest on your deposits.
*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.
