Bank deposit

Money handed to a bank in exchange for a claim on it. The bank owns the money and lends most of it out; what you hold is a debt that institution owes you, repayable on the terms of the account.

Example

A statement reading 25,000 is not 25,000 you are holding - it is 25,000 one named institution is obliged to repay you.

Important

Because it is a loan, the amount is fixed in nominal terms and cannot rise beyond the interest agreed. There is no underlying asset to appreciate, which is exactly the trade this instrument makes.

Related terms

• Creditor — Someone who has lent money and is owed repayment, ranked ahead of equity holders if the borrower runs into trouble.
• Deposit insurance — A government-backed guarantee that repays depositors when an institution fails, up to a stated limit, per depositor, per institution.
• Counterparty risk — The risk that the party on the other side of an arrangement fails to pay what it owes you.
• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.

Lessons that explain it

• A deposit is a loan you made to a bank — Money in a savings account is not money you are holding. It is a debt the bank owes you, and what makes it safe is a government guarantee with a limit - not a property of money itself. (9 min)
• Interest, and a rate somebody else can change — The whole return is a rate applied to a balance. What makes it unlike every other asset class is that the rate is set by the institution, can be changed at will, and you have agreed to that in advance. (10 min)
• The spread between the policy rate and what you are offered — There is no market price here. The price is the gap between what the central bank sets and what the institution passes on - and that gap widens and narrows in a pattern that is not symmetric. (11 min)

All 578 terms in the Investing glossary