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Dreamers Note Essay

2945 words - 12 pages

DEPOSITS
A deposit account is a savings account, current account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represents the amount owed by the bank to the customer. Some banks charge a fee for this service, while others may pay the customer interest on the funds deposited.

Individuals and corporations need money to pursue their daily business. They place the money on deposit to earn interest, using the money market. Types of deposits are:
* Call deposits, the depositor has the ...view middle of the document...

Although not as convenient to use as checking accounts, these accounts let customers keep liquid assets while still earning a monetary return.
* Time deposit: A money deposit at a banking institution that cannot be withdrawn for a preset fixed 'term' or period of time. When the term is over it can be withdrawn or it can be rolled over for another term. Generally speaking, the longer the term the better the yield on the money.
* Call deposit: A deposit account which allows withdrawing the money without penalty, mostly without notification to the bank. Often it bears favorable interest rate, but also a minimum balance to take advantage of the benefits.
Legal Framework
Although restrictions placed on access depend upon the terms and conditions of the account and the provider, the account holder retains rights to have their funds repaid on demand. The customer may or may not be able to pay the funds in the account by cheque, internet banking, EFTPOS or other channels depending on those provided by the bank and offered or activated in respect of the account.
The banking terms "deposit" and "withdrawal" tend to obscure the economic substance and legal essence of transactions in a deposit account. From a legal and financial accounting standpoint, the term "deposit" is used by the banking industry in financial statements to describe the liability owed by the bank to its depositor, and not the funds (whether cash or checks) themselves, which are shown an asset of the bank.
For example, a depositor opening a checking account at a bank in the United States with $100 in cash surrenders legal title to the $100 in cash, which becomes an asset of the bank. On the bank's books, the bank debits its currency and coin on hand account for the $100 in cash, and credits a liability account (called a demand deposit account, checking account, etc.) for an equal amount. (See double-entry bookkeeping system.)
In the audited financial statements of the bank, on the balance sheet, the $100 in currency would be shown as an asset of the bank on the left side of the balance sheet, and the deposit account would be shown as a liability owed by the bank to its customer, on the right side of the balance sheet. The bank's financial statement reflects the economic substance of the transaction—which is that the bank has actually borrowed $100 from its depositor and has contractually obliged itself to repay the customer according to the terms of the demand deposit account agreement. To offset this deposit liability, the bank now owns the actual, physical funds deposited, and the bank shows those funds as an asset of the bank.
Typically, an account provider will not hold the entire sum in reserve, but will loan the money on to other clients, in a process known as fractional-reserve banking. This process allows providers to pay out interest on deposits.
By transferring the ownership of deposits from one party to another, banks can avoid using physical cash as a method of...

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