Role Of Bank Deposit

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What role deposits play in a Bank’s functioning? Introduction A bank is a financial institution that accepts deposits and uses those deposits for lending to private sectors and households. A bank tries to bridge the mismatch between supply and demand of funds. Banks form the core element of the financial sector of any nation’s economy. In developing countries, banks play the role of a primary provider of various financial services those results in the economic growth of the economy. What are Bank deposits? The most important function of a Bank is to collect deposits. If a bank cannot obtain deposits at lower rate & invest the same at a higher rate, it will be very difficult for them to survive in this age where the globalisation and urbanisation…show more content…
Bank deposits are made kept in the form of deposit accounts. The account holder has been given the liberty of withdrawing his funds. The deposit is a liability owed by the bank to the depositor. Some of the examples of this are savings accounts, money market accounts and checking accounts are to name a few Types of bank Deposits: 1) Demand Deposit: Here the deposited funds can be withdrawn by the depositor without any notice. There is no restriction on the depositor to withdraw his funds. Examples of Demand deposits are Savings Bank Account, Current Bank Account, etc. Advantage of a demand deposit: It is very easily accessible for the depositors. Various functionalities were provided to the customers via cheques, ATMs, branch withdrawals, and online transfers and payments. One of the limitations of the demand deposits is that it does not pay very high interest rate compared to the other form of investments. Demand deposits are most useful for the depositors who need quick access to money. In comparison, Time deposits do not incur much cost and also pay high interest rates than demand deposits.  Current…show more content…
Higher interest rates are levied on long term investments.  The owner of the investment incurs a withdrawal penalty fee in case he attempts to withdraw the money before the maturity period.  The investor has two options as the account approaches maturity of either rolling over into another Certificate of Deposit or cashing in the CD. . • Liquid CDs  Liquid CDs are a cross between a savings account and a traditional CD.  Risk-free CDs or no penalty CDs.  Rates are higher than savings account interest rates  Locked in at a fixed rate but the owners can initially withdraw money at any time without a penalty. The number of withdrawals a person can make without incurring a penalty is left at the bank’s discretion. Law says that an investor must wait a minimum of seven days before making the first withdrawal. However banks have the right of imposing an additional waiting period.  Due to more flexibility the interest rate on a liquid CD is usually lower than the interest rate on a traditional CD. Balance Sheet Disclosure - Deposits are classified in the balance sheet as:-  Demand Deposits o From Banks o From Others  Savings Bank Deposits  Term Deposits o From Banks o From

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