In the United States, the Federal Reserve is the central banking ocean to which all of the banking streams are connected. The main purpose of this banking system according to the Federal Reserve Act is “to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes,” which is to help calm nerves and protect during a banking panic. The Federal Reserve also speaks a unique language and that includes the term transaction deposit.
What is a Transaction Deposit?
A transaction deposit is a term used by the Federal Reserve to describe accounts for which transactions such as withdrawals can occur. This term is also used throughout the banking industry. For transactional deposits, the bank must hold financial reserves to cover such transactions and typically the accounts are not set up to earn interest but to allow the holder quick access to their money to offer payment for goods and services. Transaction deposits have full liquidity, meaning there are no delays placed on the account holder to access their money. If you have direct deposit from your employer into your checking account, that would be a transaction deposit because once the money posts to your account you will have full access to your funds.
What are the Restrictions for Transaction Deposits?
The meaning of transactional deposit runs in stark contrast to other accounts of the savings variety, as there are often quantity and time restrictions for accessing those types of accounts. Unlike unlimited transaction deposits, you can be charged extra for accessing your savings accounts too frequently. Those who are opening new transaction deposit accounts may not have the full freedom of accessing their money immediately. New bank account holders often have to wait several days until the money clears into their account to access it. However, those who have had a transaction deposit account for several years and have had no record of problems with the account can often have transaction deposits clear into their account by the next business day.
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