Deposit Sources of Funds

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Deposit Sources of Funds:

A deposit account is a savings account, current account, or other type of bank account, at a

banking institution that allows money to be deposited and withdrawn by the account holder.

These transactions are recorded on the bank's books, and the resulting balance is recorded as a

liability for the bank and represents the amount owed by the bank to the customer.

Major Types of Deposits:

Current Accounts:

A deposit account held at a bank or other financial institution, for the purpose of securely and

quickly providing frequent access to funds on demand, through a variety of different channels.

Because money is available on demand these accounts are also referred to as demand accounts or

demand deposit accounts, except in the case of NOW Accounts. These deposits are also knownas demand deposits. These deposits can be withdrawn at any time.

Major

Types of

Deposits

Current

Accoun

ts MoneyMarket

Accoun

t

Savings

Accoun

tsFixed

Deposits

Time

Deposi

t

Transaction

Deposi

ts


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Money Market Account:

Money Market Account is a deposit account that pays interest, and for which short notice (or no

notice) is required for withdrawals. In the United States, it is a style of instant access deposit

subject to federal savings account regulations, such as a monthly transaction limit.

Savings Accounts:

Savings deposits, or thrift deposits, are designed to attract funds from customers who wish to set

aside money in anticipation of future expenditures or financial emergencies. These deposits

generally pay significantly higher interest rates than transaction deposits do. While their interest

cost is higher, thrift deposits are generally less costly for a bank to process and to manage.

Fixed Deposits:

These deposits are also known as time deposits. These deposits cannot be withdrawn before the

expiry of the period for which they are deposited or without giving a prior notice for withdrawal.

If the depositor is in need of money, he has to borrow on the security of this account and pay a

slightly higher rate of interest to the bank. They are attracted by the payment of interest which is

usually higher for longer period. Fixed deposits are liked by depositors both for their safety and

as well as for their interest. In India, they are accepted between three months and ten years. The

first type is industrial paper generally issued by industrial companies to purchase inventories of

goods or raw materials. The second type if finance paper is issued mainly by finance companies

or financial holding companies to purchase loans of the books of other financial firms in the

same organization so that more loans can be made.

Time Deposit:

A money deposit at a banking institution that cannot be withdrawn for a preset fixed 'term' or

period of time. When the term is over it can be withdrawn or it can be rolled over for another

term. The longer the term the better the yield on the money on term deposit.


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Call Deposit:

Call deposit is a deposit account which allows withdrawing the money without penalty, mostly

without notification to the bank. Often it bears favorable interest rate, but also a minimum

balance to take advantage of the benefits.

Transaction Deposits:

Transaction deposit is a banking deposit that has immediate and full liquidity, with no delays or

waiting periods. Transaction deposits can be transferred into other cash instruments, have

electronic payments authorized against them, or otherwise be transacted by the financial

institution solely at the request of the account holder. Transactions deposits must be held in

reserve by the bank at all times; they stand in contrast to time deposits and even deposits into a

savings account, which may have monthly limitations on the number of transactions or transfers

allowed. Making a deposit into a conventional checking account will be considered a transaction

deposit, as the account holder is allowed to withdraw the amount at any time.

Non Deposit Sources of Borrowed Funds

Figure: Different types of Non Deposit Sources of Borrowed Funds


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Certificates of Deposit:

Negotiable CDs were developed to attract large corporate deposits and savings from wealthy

individuals. Because these were not insured they paid a higher interest rate than traditional

deposits. The concept of liability management and short-term borrowing to supplement deposit

growth was given a significant boost early in the 1960s with the development of negotiable

CD.Negotiable CDs offer a way to attract large amounts of funds quickly and for a known time

period. However, these funds are highly interest sensitive and often are withdrawn as soon as the

maturity date arrives unless management aggressively bids in terms of yield to keep the CD. A

certificate of deposit (CD) is a money market instrument issued by a depository institution asevidence of a time deposit. Small denomination certificates of deposit are issued to retail

investors.

Certificates of deposit fall into three general categories:

Domestic CDs are issued within a country by a domestic bank or other depository

institution.

Foreign CDs are issued within a country by a domestic branch of a foreign depositoryinstitution.

Euro CDs are issued outside a country but are denominated in that countrys currency.

Bankers Acceptance:

A banker's acceptance, or BA, is a promised future payment, or time draft, which is accepted and

guaranteed by a bank and drawn on a deposit at the bank. The banker's acceptance specifies the

amount of money, the date, and the person to which the payment is due. After acceptance, the

draft becomes an unconditional liability of the bank. But the holder of the draft can sell

(exchange) it for cash at a discount to a buyer who is willing to wait until the maturity date for

the funds in the deposit.So a bankers acceptance (BA) is a money market instrument: a short-

term discount instrument that usually arises in the course of international trade.


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"overnight". The interest rate at which these deals are done is called the federal funds rate.

Federal funds are not collateralized; like Eurodollars, they are an unsecuredinterbank loan.

Commercial Paper Issued:

Commercial paper consists of short-term notes, with maturities ranging from three or four daysto

nine months, issued by well-known companies to raise working capital. The notes aregenerally

sold at a discount from their face value through security dealers or through directcontact between

the issuing company and interested investors.Commercial paper is a high-quality, short-term debt

obligation with an excellent credit rating to provide for short-term cash needs. There are two

types of commercial paper.

Documents

Deposit Sources of Funds