What is a Deposit Account?

For those who are new to the financial world, there are two important accounts every individual should have.

The first type of account is a transactional account, also known as a demand deposit account, such as a checking account. This will allow you to access your money when you need it to pay for goods and services. The second type of account is a savings account, which is used to store money.

The purpose of having these two types of deposit accounts is convenience. Deposit accounts are a way for individuals to store extra cash and earn interest at the same time, while also keeping it safe and insured within a financial institution. The account holder has access to withdraw money and the bank records these transactions.

Depending on where you open a deposit account, the bank can both reward you with interest and levy fees. Additional charges may be accrued on a deposit account if a customer accesses the account too often or is in conflict with additional terms of agreement that were established upon opening the account.

There are three types of deposit accounts:

Demand deposit account/Transactional account–These accounts serve as short-term fundholders in which money constantly goes in and out.

Savings deposit account–Savings accounts typically pay interest and do not provide account holders direct access to their money, as with a check or debit card.

Time deposit account–This is a third type of deposit account you can use as a longer-term investment. Individuals are denied access to their funds for a predetermined period of time in order to earn a greater rate of return. A certificate of deposit is a type of time deposit.

The Federal Deposit Insurance Corporation or FDIC covers many types of deposit accounts. The money in deposit accounts is typically insured. Deposit accounts that are protected by the FDIC are checking accounts, savings accounts, money market deposit accounts and certificates of deposit (CDs).

Currently, deposit accounts are insured up to $250,000 per bank. If you have significantly more than what the FDIC insures in your deposit accounts, speak to your local bank branch to confirm how much of your money is covered by the FDIC and perhaps move some to a different bank.