Bank Deposits

Bank deposits are the money that households, businesses and governments hold with banks, in current, savings, call and fixed accounts. Legally, each deposit is a debt the bank owes to its customer. Taken together, deposits are the largest source of funding for most banks and the biggest part of the money an economy uses, which is why "bank deposits" or "deposits of scheduled banks" is one of the headline statistics every central bank publishes.

This entry is about the deposit base as a whole: what it consists of, how it is classified and why it matters. The single act of paying money into an account is covered in deposit, and the account itself in deposit account. Deposits are distinct from the cash a bank holds and from money placed in investment products such as money market funds, which are not bank debts.

When you hand cash to a bank, you are not storing it in a box with your name on it. You are lending it to the bank, and the number in your account is the bank's promise to give it back when you ask, or on an agreed date. The bank uses the money to make loans and buy securities.

Think of a large shared kitty at a workplace. Everyone pays in and the kitty-keeper writes down how much each person is owed. Because people rarely all want their money on the same day, the keeper can lend part of it out. The written record is what you own. Bank deposits are that record, kept for millions of people at once.

In English common law, the House of Lords held in Foley v Hill (1848) that money paid into a bank becomes the bank's property and the customer becomes a creditor. Most legal systems follow the same idea. A deposit is therefore commercial bank money: a claim on a private bank, not on the state. If the bank fails, depositors rank as creditors, which is why most countries run deposit insurance schemes that repay small depositors up to a limit.

Banks and statisticians split deposits into demand (sight) deposits, which can be withdrawn at once, and time deposits, which are locked for a period:

• Current deposits. Balances in a current account (a checking account in the US) used for payments, usually earning little or no interest. See current deposits.
• Savings deposits. Balances in a savings account, withdrawable on demand or short notice and paying interest. See savings deposits.
• Call deposits. Interest-bearing balances repayable on call or at short notice, often used by firms and institutions. See call deposits.
• Fixed deposits. Money placed for a fixed term at an agreed rate, called term or time deposits; the US cousin is the certificate of deposit (CD). See fixed deposits.

In US terminology, demand balances are held in a demand deposit account (DDA). Deposits are also classified by holder (households, businesses, government, non-residents) and by currency, since many banks take foreign currency deposits.

Deposits arise when customers pay in cash or receive transfers, but most are created by lending: when a bank makes a loan, it credits the borrower's account with a new deposit. Banks keep a share of deposits as reserves, sometimes under a reserve requirement, and lend or invest the rest. The advances-to-deposit ratio (ADR) shows how much of the deposit base has been lent out. The gap between what banks pay on deposits and earn on loans drives their net interest margin (NIM). Because deposits can be withdrawn faster than loans are repaid, banks carry liquidity risk; a sudden rush of withdrawals is a bank run. In March 2023, depositors tried to withdraw about 42 billion US dollars from Silicon Valley Bank in a single day before it was closed.

Bank deposits make up most of the money supply. Narrow measures add demand deposits to currency in circulation; broader ones, such as broad money (M2), also include savings and time deposits. By contrast, reserve money (M0) counts banks' balances at the central bank, not customers' deposits. Growth in deposits therefore tracks growth in money and is closely watched for monetary policy.

The State Bank of Pakistan publishes deposits of scheduled banks by type of account (current, call, savings and fixed), by holder and by size. Its statistical bulletin treats current, call and savings-type accounts as demand deposits and fixed deposits as time deposits. Islamic banks take most deposits on a mudarabah profit-sharing basis rather than at a fixed interest rate, and their figures are reported alongside conventional banks'. Small depositors are protected by the Deposit Protection Corporation, a subsidiary of the SBP set up under the Deposit Protection Corporation Act 2016.

• FDIC: Deposit insurance
• Financial Services Compensation Scheme