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

A deposit is money held in a bank account or with another financial institution that requires a transfer from one party to another. A deposit can also be the amount of money used as security or collateral for delivery of goods or services.

How a Deposit Works

A deposit is essentially your money that you transfer to another party, such as when you move funds into a checking account at a bank or credit union.

In the case of depositing money into a bank account, you can withdraw the money at any time, transfer it to another person’s account, or use it to make purchases.

Banks might also offer the creation of separate business accounts. Business banking—also called corporate or commercial banking—is designed to meet the needs of businesses. They allow for deposits and withdrawals as with personal accounts but often have different limits. Some business accounts will allow employees to deposit or withdraw funds. Banks that offer business accounts frequently have night depositories, which are secured lock boxes that allow users to deposit cash and checks when the bank is closed.

Often, you must deposit a certain amount of money, called the "minimum deposit," to open a new bank account. Depositing money into a checking account qualifies as a transaction deposit, which means that the funds are immediately available and liquid, and you can withdraw them without delays.

The other definition of deposit is when a portion of funds is used as a security or collateral for the delivery of a good. Some contracts require a percentage of funds paid before the delivery as an act of good faith. For example, brokerage firms often require traders to make an initial margin deposit to enter into a new futures contract.

Types of Deposits 

There are two main types of deposits: demand and time.

• Demand deposit: A demand deposit is a conventional bank and savings account. You can withdraw the money anytime from a demand deposit account without advance notice. 
• Time deposits: Time deposits are those with a fixed time and usually pay a fixed interest rate, like a certificate of deposit (CD). These interest-earning accounts offer higher rates than savings accounts. However, time deposit accounts require that money be kept in the account for a set period of time. 

Example of a Deposit 

Deposits are often required on many large purchases, such as real estate or vehicles, for which sellers require payment plans. Financing companies typically set these deposits at a certain percentage of the full purchase price. A down payment on a home is essentially a deposit.

You may have to pay a deposit in many rental scenarios, whether you are renting an apartment, car, or another product. The deposit is called the security deposit. A security deposit’s function is to cover any costs associated with any potential damage done to the property or asset rented during the rental period. A partial or total refund is applied after the property or the asset is verified at the end of the rental period.

FAQs

The Bottom Line

A deposit in finance is typically when you transfer money to a bank account like a checking account for safekeeping. However, it can have other meanings as well. For example, you may need to place a deposit, or a certain amount of money, with a business to secure goods or services such as for a rental.