Deposits in banks commercial bank

Definition and Characteristic - A transaction account is an account that allows transactions to occur without restrictions on the frequency or the volume of transaction.. Specificlly, ba

DEPOSITS IN BANKS

I DEPOSIT ACCOUNT

1 TRANSACTION ACCOUNTS

1.1 Definition and Characteristic

- A transaction account is an account that allows transactions to occur without restrictions

on the frequency or the volume of transaction

- The Transaction account affect the Money Supply because of its high liquidity

Specificlly, banks are required to hold reserve funds, incase of immediate withdrawals at

the direction of the account holder

1.2 Types of Transaction account

 Demand deposit accounts

- Are payable on demand whenever the depositor chooses

 Checking account

- The most common form of transaction account;

- According to their ownership, there are 2 types of checking account:

 Single account: is owned by 1 person

 Joint account: is owned by more than 1 person, each of whom have the equal right access to it

o Tenants in common:

- Use in business partnership;

- The approval of all owners is required to make withdrawals

o Joint tenancy

- Use in consumer partnership;

- Allows each owner make deposits and withdrawals independently;

- Provide the right of survivorship

- Check 21 Check 21 is a new negotiable instrument This substitute check allow banks to

electronically process check information, so that the checking – clear process would be fast and cheap

- Checking accounts can be categorized by their characteristics:

o Basic : offer a few simple services for minimal cost

o “Free” : requires a minimum balance but waives certain fees

o “No Service Charge” : which charge for ATM withdrawals, has no other

services fees and no minimum balance

o Interest-bearing: Do pay interest on the balance deposited in the account

o Express: for people who prefer to bank by ATM, telephone, or online; low

minium balance and low/no monthly fees

o Lifeline: Low-income bank customers (low minimum deposit and balance

requirement, monthly fees)

o “No-Frills”: age 55 or over or a student

- Free personal checks;

- Free cashier’s or traveler’s checks;

- Increased use of ATMs;

- Better rate on loans and credit cards;

- Discounts on a variety of items such as travel

2 Time Deposits

I.1 Definition:

- Time deposits are deposits that are held or mature at a specified time;

- Less liquid than transaction account

I.2 Types of Time deposits:

- Savings Accounts;

- Money Market Deposit Accounts;

- Certificates of Deposit

- Interest rate: SA<MMDA<CDs;

- Liquidity: SA>MMDA>CDs

II INTEREST – BEARING ACCOUNT

- Simple interest;

- Compound interest;

- Annual percentage rate (APR);

- Annual percentage Yield (APY)

III DEPOSIT ACCOUNT DOCUMENTS