A depositor is a person, business, government body or other organization that places money with a bank or other deposit-taking institution. The money is held in a deposit account, such as a checking account, a savings account or a certificate of deposit, and the depositor has the right to withdraw it on the terms of that account.
In law and in accounting, the relationship between a depositor and a bank is one of creditor and debtor. Once money is deposited it belongs to the bank, which owes the depositor an equal amount. The depositor therefore records the balance as an asset, while the bank records it as a liability. In the United States, depositors at insured banks are protected by the Federal Deposit Insurance Corporation (FDIC) up to the legal limit.
Depositors in plain terms
When you put cash into your bank account, the bank does not keep your particular banknotes in a box with your name on it. It mixes them with everyone else's money and lends much of it out. What you get in return is the bank's promise to pay you back whenever you ask, or at the end of an agreed term.
That makes you, the depositor, a kind of lender to the bank. Your account statement is a record of how much the bank owes you. Because ordinary savers cannot easily check how safe a bank is, governments insure deposits up to a limit so that people do not lose their savings if a bank fails.
How the depositor records deposits
For a business depositor, money in the bank is part of cash on the balance sheet. A deposit of customer receipts is recorded with a debit to Cash and a credit to the account the money came from, such as Accounts Receivable or Sales. The depositor prepares a deposit slip or uses an electronic deposit, and keeps the record to support the entry.
Each month the depositor compares its own cash records with the bank statement in a bank reconciliation. Differences usually arise from timing. Deposits in transit have been recorded by the depositor but not yet by the bank, while outstanding checks have been written but not yet cleared. Bank charges and interest credited by the bank must be recorded in the depositor's books once they appear on the statement.
How the bank records deposits
From the bank's side, a deposit increases its cash or reserves and also increases a liability, often simply called Deposits. When the depositor's account is credited, the bank's obligation to that customer grows. This is why a bank statement describes deposits as credits: they are credits to the bank's liability to the customer, even though the depositor records them as debits to its own cash account.
Banks classify their deposit liabilities by type. Demand deposits can be withdrawn at any time, while time deposits are held for an agreed term. These deposits are a bank's main source of funding, and their stability affects the bank's liquidity risk.
Depositor protection
Deposit insurance in the United States covers up to $250,000 per depositor, per insured bank, for each ownership category, such as single accounts, joint accounts and certain retirement accounts. Credit union members are protected in a similar way by the National Credit Union Administration. Deposits beyond the limit are uninsured and depend on the bank's ability to pay, which is why large business depositors often spread funds across several banks or use sweep arrangements.
Depositors also have legal rights over how banks handle their accounts. Federal rules govern when deposited funds must be made available, how electronic transfers are handled, and what disclosures banks must give about interest and fees. Banks in turn must verify a new depositor's identity under customer identification rules before opening an account, as part of their anti-money laundering programs.
Depositors compared with investors
A depositor is different from someone who buys a bank's shares or bonds. A depositor's claim is for a fixed amount of money, usually with modest interest and, within the limit, government protection. A shareholder owns part of the bank and bears its losses first. Money placed in money market funds, brokerage accounts or stocks through a bank is not a deposit and is not covered by FDIC insurance, even when it is bought at a bank branch.