Deposit

A deposit is money placed with a bank or other deposit-taking institution, and the act of paying it in. When a customer deposits cash, a cheque or an electronic transfer, the bank credits the customer's account and takes on an obligation to repay the same amount on demand or at an agreed date. For the customer a deposit is an asset; for the bank it is a liability, usually its largest.

The word also has wider everyday meanings, such as a sum paid up front to secure a purchase or a rental. In banking it covers both a single act of paying in and the stock of money held. This page deals with the individual deposit and its legal and economic nature; the total of deposits held across a country's banks is covered under bank deposits.

When you deposit money at a bank, you are not putting it in a box with your name on it. You are lending it to the bank. The bank writes down that it owes you that amount, mixes your cash with everyone else's, and uses most of it to make loans. In return it promises to give you back the same sum whenever you ask, and sometimes pays you a little extra for the use of it.

It is rather like leaving your coat at a cloakroom that returns "a coat of the same value" rather than your coat. That works because not everyone collects at once. If they do, the cloakroom has a problem, and that is what a bank run is.

• Over the counter. The customer hands cash or cheques to a cashier with a paying-in slip (deposit slip) and receives a stamped receipt.
• By machine. Many cash machines and branch kiosks accept notes and cheques.
• Electronically. Wages, benefits and transfers arrive as direct deposit or a credit transfer, with no paper at all.
• By phone. Cheques can be photographed and paid in through a banking app using remote deposit capture.

Cash is usually available at once. Cheques take time to clear, and banks set rules on when deposited funds can be used. Large or unusual cash deposits are checked under anti-money-laundering rules; in the US, cash over $10,000 in a business day triggers a Currency Transaction Report.

In English common law the position was settled by the House of Lords in Foley v Hill (1848). Money paid into a bank becomes the bank's money; the bank is not a trustee for the customer but a debtor, owing an equivalent sum. Later cases built on this: in Joachimson v Swiss Bank Corporation (1921) the Court of Appeal held that a current-account balance is a debt that becomes payable when the customer makes a demand. Most common-law countries, including Pakistan, India and the US, follow the same debtor-creditor model.

This has practical effects. Because the money belongs to the bank, a depositor in a failed bank is an unsecured creditor, which is why governments run deposit insurance schemes. It also explains the difference between a deposit and items kept in a safe deposit box, which remain the renter's property.

Deposits are the main form of money in a modern economy. Balances in bank accounts, known as commercial bank money, make up most of the money supply, far more than notes and coins. Statistical measures such as broad money (M2) add up currency held by the public and various kinds of deposits.

Deposits are not only created when someone brings in cash. As the Bank of England explained in its 2014 Quarterly Bulletin article "Money creation in the modern economy", when a bank makes a loan it credits the borrower's account, creating a new deposit at the same moment. The bank's ability to keep doing this is limited by regulation, capital requirements and the need to hold liquid assets, and in some countries by a reserve requirement.

Banks classify deposits by how quickly they can be withdrawn:

• Demand deposits, such as current deposits, payable at any time.
• Savings deposits, typically held in a savings or deposit account, which pay interest and may have limited withdrawals.
• Time deposits, such as fixed deposits, locked until a maturity date.

The mix matters for stability. Demand deposits are cheap funding but can leave quickly, as in a run on a bank; term deposits are steadier but cost more. In Pakistan, the State Bank of Pakistan publishes deposit figures for scheduled banks by type and by holder, and Islamic banks take deposits on a profit-and-loss sharing basis rather than at a fixed rate of interest.

Outside banking, a deposit is often money handed over as security: a rent deposit held against damage, a deposit towards a house that the buyer loses if they pull out, or a deposit on a returnable bottle. In investment and crypto platforms, "deposit" usually means funding an account. Banks are also testing the tokenized deposit, an ordinary bank deposit recorded on a blockchain-style ledger so that it can move with programmable settlement.

• Bank of England: Money creation in the modern economy (2014)
• FDIC: Understanding deposit insurance