Deposit in the financial industry
In common terms, deposit means the safekeeping of a certain sum of money in a financial institution. The finance and business sector define deposit as a fixed amount of money deposited against payment of interest. When the first deposit is made, the general conditions are recorded in writing. These refer to the general terms and conditions of the financial institution or bank and regarding the interest rate.
Deposit – Security retention amount
In the payment industry, deposit is the security retention on the cleared amount. In the case of a credit card payment, this usually involves a retention of around five to 15 percent – over a period of six months. The deposit provides a certain amount of security, for example, in the event of a chargeback.
Deposit: Demand deposits and time deposits
In finance, there are two different types of deposits. Banks use these two deposit types to make loans. A distinction is made between so-called demand deposits and time deposits. In the case of demand deposits, the deposit consists of an amount of money invested for an indefinite period of time. This deposit can be redeemed by the customer (referring to the depositor) at any time, either in full or in part. As a rule, no interest rates are charged on this demand deposit, also known as the current account. In contrast, with a term deposit, the depositor undertakes to deposit the fixed sum with the financial institution for a specified period (at least one month). The bank honors this with an interest rate charged on the account. If the customer withdraws the sum of money from his account earlier than agreed, the bank does not pay the accrued interest.
Deposit: Origin of the term
According to the Economic glossary (Publishing house Munich, 2008), deposits played a somewhat different role at the time of the founding of modern finance than they do today. In the current time the banks use the money from Deposits, in order to realize further financial transactions and/or procedures for the creation of money. Initially, however, it was capital that was merely deposited with the bank without making it available to the economic cycle again.
Deposit banking is also used in connection with the term deposit. A deposit bank is a financial institution that specializes in lending deposits.
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