What is a deposit?
Key Points
Deposits refer to money that is stored in banks or other financial institutions.
Current deposits and fixed deposits are the most basic types of deposits.
Some large certificates of deposit can be traded on the secondary market, which helps to promote the full marketization of deposit interest rates.
Conceptual Understanding
In financial terms, deposits refer to funds or currency that are temporarily stored in banks or other financial institutions by enterprises or individuals while retaining ownership.
Types of deposits
Deposits mainly have two types: current deposits and fixed deposits.
Current deposit is a traditional savings method that allows funds to be deposited and withdrawn at any time in the deposit account.
Fixed deposit is a deposit with a fixed term, usually with a fixed interest rate agreed upon at the time of deposit.
On the basis of fixed deposit, banks can also provide deposit certificates. However, unless there are special circumstances, fixed deposits cannot be prematurely withdrawn, or if they are prematurely withdrawn, settlement will be made based on current deposit rates.
The role of deposits
Under normal circumstances, the biggest role of deposits is to earn interest income.
However, in some countries where negative interest rates are present, deposits not only do not earn interest income, but there may also be a reduction in principal.
In addition, in some countries, large deposit certificates have evolved into the form of large certificates of deposit (CD), specific large certificates of deposit can be freely traded on the secondary market.
Large certificate of deposit transactions help promote the development of comprehensive market-oriented interest rates for deposits, facilitate banks to expand the market-based pricing system of liability products in an orderly manner, enhance the pricing ability of financial institutions, and enhance secure investment channels.