What is a bank deposit (definition)
– A bank deposit is money placed into an account at a bank or credit union for safekeeping and convenience. Common deposit accounts include checking (also called current or demand accounts), savings accounts, money market accounts, and time deposits such as certificates of deposit (CDs).
How deposits work (short explanation)
– When you hand cash or a check to a bank and it credits your account, legal title to that cash generally transfers to the bank. The bank records a liability (an obligation) on its books for the amount it owes you, while the cash becomes an asset of the bank. Your account agreement describes how and when you may withdraw or transfer those funds.
Main types of deposit accounts (what distinguishes each)
– Current (demand) account / Checking: Funds are highly liquid and can be withdrawn at any time by debit card, check, ATM, or in-branch withdrawal. Some banks charge monthly fees but may waive them if you meet conditions (for example, direct deposit or minimum activity).
– Savings account: Intended for storing money while earning interest. Access is easier than long-term investments but may be more limited than a checking account; low balances or infrequent activity can sometimes trigger fees.
– Money market (call deposit) account: A hybrid that usually pays higher interest than a basic savings account but often limits the number of withdrawals or checks you can write.
– Interest-bearing checking (Checking Plus / Advantage): Combines checking access with interest payments; features and limits vary by bank.
– Time deposit / Certificate of Deposit (CD): Funds are locked for a fixed term in exchange for a higher interest rate. Early withdrawals typically incur penalties. Also called term deposits or fixed-term accounts in other jurisdictions.
– Business conveniences: Many banks offer night depositories or lock boxes so businesses can deposit cash and checks outside normal hours.
Deposit insurance (basic coverage rules)
– In the United States, the Federal Deposit Insurance Corporation (FDIC) protects depositors at member banks for at least $250,000 per depositor, per insured bank, for each account ownership category. Federally insured credit unions receive similar coverage from the National Credit Union Administration (NCUA). Banks and credit unions typically display signage indicating federal deposit insurance.
Reporting and large deposits (what the body text highlights)
– When cash or checks exceed certain thresholds, reporting rules apply. The material provided notes a common $10,000 threshold: deposits above $10,000 may trigger reporting obligations and, for businesses, can require filing IRS Form 8300. The same source indicates banks will report large checks and cash deposits over $10,000 to the IRS. (See the checklist below and the official IRS and FinCEN guidance linked in sources for full rules and definitions.)
Short checklist — What to do when placing money in a bank
1. Confirm the account type you need (checking, savings, money market, CD) based on access and interest priorities.
2. Check the bank’s fees and minimum-balance rules that may apply to the chosen account.
3. Verify deposit insurance: look for FDIC or N
N or NCUA (for credit unions). FDIC/NCUA insurance protects depositors against institution failure up to applicable limits (commonly $250,000 per depositor, per ownership category). Use the FDIC’s or NCUA’s insurance tools (links below) to verify how coverage applies to your account structure.
4. Know funds-availability / hold rules
– Regulation CC (the federal rule on check holds) generally requires banks to make the first $225 of a day’s check deposits available the next business day. Larger check amounts can be placed on hold for several business days depending on the check type, whether the account is new, and other risk factors. Cash and electronic direct deposits are typically available same day.
– Practical steps: ask your bank in advance how long a hold will be for a particular deposit; get the explanation in writing or on your receipt.
Worked example — availability
– You deposit a $5,000 payroll check. The bank must make at least $225 available the next business day; the remaining $4,775 may be on hold for a few business days under Reg CC, depending on bank policy and account history.
5. Endorse checks and follow mobile-deposit rules
– Endorse checks correctly (sign the back) and, if using mobile deposit, follow the bank’s instructions precisely — usually include “For mobile deposit only” or the bank’s requested restrictive endorsement.
– Check mobile-deposit limits (daily and per-check) and retain the paper check for the bank’s recommended time before destroying it.
6. Be aware of cash-reporting rules and anti-structuring laws
– Banks file a Currency Transaction Report (CTR) with FinCEN for cash deposits or withdrawals over $10,000 in a single day. Businesses that receive more than $10,000 in cash in one transaction (or related transactions) must file IRS Form 8300.
– Structuring (breaking a single large cash transaction into smaller amounts to avoid reporting) is illegal and can lead to civil and criminal penalties.
Numeric examples — reporting and structuring
– If you deposit $12,300 in cash in one visit, the bank will file a CTR.
– If you make three cash deposits of $4,200 on consecutive days intended to avoid reporting, that can be treated as structuring — a federal offense.
7. Prepare documentation when depositing large cash amounts
– Bring government ID and documentation of the cash source (e.g., bill-of-sale, settlement statement). Businesses should have written receipts and internal records.
– Ask the bank to give you a deposit receipt that specifies amount, date, and method (cash, check, etc.).
8. Business controls and receipts
– Businesses should segregate duties (different people handle cash receipts, deposit preparation, and reconciliation), require dual sign-off for large deposits, and keep original receipts and bank deposit slips. File Form 8300 within required timeframes when applicable.
9. Safety, fraud prevention, and large transfers
– Avoid carrying large amounts of cash. For large transfers, prefer bank wire transfers or cashier’s checks. Confirm wiring instructions by phone to a previously known number to reduce wire-fraud risk
10. How banks use deposits
– Banks treat most customer deposits as liabilities on their balance sheets because the funds can be withdrawn on demand or at maturity. They use these pooled deposits to extend loans and buy investments, which are assets that generate interest income for the bank.
– Fractional-reserve concept (brief): banks retain only a fraction of deposits as reserves for daily withdrawals; the remainder supports lending and investment. Note: since March 2020 the Federal Reserve set formal reserve requirement ratios to zero for many deposit types, but banks still hold liquid assets and follow capital and liquidity rules to manage risk and meet withdrawal demand. (See sources below.)
– Practical implication for depositors: your cash supports credit in the economy, but access and safety depend on the bank’s liquidity, regulatory supervision, and deposit insurance.
11. Deposit insurance and safety limits
– FDIC insurance (U.S.): standard coverage is $250,000 per depositor, per insured bank, per ownership category (for example, single accounts vs. joint accounts). Example: if you hold $200,000 in a checking account and $100,000 in an individual savings account at the same insured bank, only $250,000 is insured in total across those individual ownership accounts—so $50,000 would be uninsured unless accounts are structured across different ownership categories or different banks.
– How to check: confirm a bank’s FDIC status on the FDIC’s BankFind tool before opening accounts.
– Business and custody nuances: trusts, retirement accounts, and certain business accounts are treated differently; always verify limits for your ownership type.
– Practical step: if you need coverage beyond limits, consider spreading deposits across multiple FDIC-insured banks or using custody/escrow arrangements that qualify under different ownership categories.
12. Interest, yields, and compounding — worked examples
– Interest terminology:
– APY (annual percentage yield): the effective annual return that accounts for compounding.
– Simple interest vs. compound interest: compound interest reinvests earned interest so future interest is earned on prior interest.
– Example 1 — Savings account APY:
– Principal: $10,000, APY: 1.20%, compounded monthly.
– Future value after 1 year = 10,000 × (1 + 0.0120/12)^(12) ≈ 10,121.54. Interest earned ≈ $121.54.
– Example 2 — Certificate of deposit (CD) vs. checking:
– CD: $10,000 at 2.00% APY locked for 1 year → about $10,200 at maturity.
– Checking: $10,000 at 0.05% APY → about $10,005 in one year.
– Practical considerations: higher rates often come with trade-offs (limited liquidity, minimum balances, penalties for early withdrawal).
13. Holds, availability, and transaction limits
– Check holds: Regulation CC governs availability of deposited funds; banks may make portions of deposits available immediately but hold other amounts based on check size, depositor history, and risk. Common practice: large checks or out-of-state checks can have multi-day holds.
– ATM and daily limits: banks set ATM withdrawal limits and daily online transfer limits to control fraud and liquidity. Ask the bank for limits before relying on cash access for large expenses.
– Wire vs. ACH timing: domestic bank wires are usually same-day (business hours), ACH transfers can take 1–3 business days. Plan timing accordingly.
14. Taxes and reporting
– Interest income is taxable as ordinary income. Banks report interest of $10 or more on Form 1099-INT (fewer threshold exceptions apply), which you use when filing federal taxes.
– Cash reporting and anti-money-laundering rules:
– Banks must file Currency Transaction Reports (CTRs) for cash transactions over $10,000 and may file Suspicious Activity Reports (SARs) when activity appears unusual.
– Practical tip: keep records of large cash sources (sales receipts, settlement statements) to support legitimate transactions if bank or regulators inquire.
15. Choosing accounts — checklist for retail customers
Before opening or moving a deposit account, verify:
– FDIC insurance status and coverage limits for your ownership type.
– APY and how interest is compounded and paid.
– Fees (monthly maintenance, ATM out-of-network, overdraft, early withdrawal).
– Minimum balance and balance tiers that affect rates/fees.
– Liquidity and restrictions (withdrawal limits, early withdrawal penalties).
– Availability policies and typical hold periods.
– Electronic services: mobile app quality, online transfers, bill pay, and customer service hours.
– Branch and ATM network convenience.
– Security features: multi-factor authentication, fraud alerts, encryption.
– Documentation required to open the account (ID, proof of
address (utility bill, bank statement), Social Security number or taxpayer ID, and—for non-U.S. citizens—passport and immigration documents. Confirm whether the bank requires a minimum initial deposit and whether the account can be opened online or must be done in person.
– 11. Special features and add-ons — confirm whether the account offers: overdraft protection (source and fees), linked savings/ checking transfers, automatic sweep to higher-yield accounts, subaccounts or buckets for budgeting, check-writing or debit-card limits, and options for beneficiary/payable-on-death (POD) designations.
– 12. Promotional rates and disclosures — read the fine print on introductory APYs: note how long the rate lasts, what balance tiers qualify, and whether the APY reverts to a lower ongoing rate. Check whether the advertised APY includes compounded interest or is a simple rate.
– 13. Account portability and bank failures — ask the bank how quickly you can transfer funds out and what documentation the receiving institution will need. Verify the bank’s FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) membership and your likely coverage before relying on balances above standard limits.
– 14. Tax reporting — confirm which interest (and penalties) the bank will report to the IRS on Form 1099-INT and whether the bank will issue backup withholding documentation if applicable.
– 15. Final pre-opening checklist — before you sign: verify APY and compounding frequency in writing; confirm all fees and when they’re assessed; ensure electronic access credentials work; save account-opening receipts; and record the bank’s routing and your new account number.
16. How to verify FDIC/NCUA coverage (step-by-step)
– Know the rule: standard FDIC/NCUA insurance is $250,000 per depositor, per insured bank, per ownership category (an “ownership category” is a legal form of ownership such as single, joint, trust).
– Step 1: List every account you hold at the bank and the owner(s) on each account.
– Step 2: Group accounts by ownership category (single-owner, joint, revocable trust, etc.).
– Step 3: For each category, add the balances. If the total in a category ≤ $250,000, it is fully insured. If > $250,000, the excess is uninsured unless covered under a different category.
– Example: You hold a single account with $200,000 and a joint account with your spouse of $400,000 at the same bank. Coverage = $250,000 for your single account + $250,000 for the joint account (each joint-account co-owner insured for $250,000) = $500,000 total insured. The joint account has $400,000, all covered because joint coverage equals $250,000 per co-owner (2 owners × $250,000 = $500,000 available for joint accounts).
– For complex cases (trusts, business accounts, retirement accounts) use the FDIC’s or NCUA’s online insurance calculators or ask a bank officer.
17. Simple interest-compounding example (worked numeric)
– Formula: Future value with n compounding periods per year: FV = P × (1 + r/n)^(n×t)
– Example: P = $10,000, APY nominal r = 2.00% (0.02), compounded monthly (n = 12), t = 3 years.
– FV = 10,000 × (1 + 0.02/12)^(12×3) = 10,000 × (1 + 0.0016667)^36 ≈ 10,617.
– Interpretation: At 2% annual yield compounded monthly, $10,000 grows to roughly $10,617 in three years. Always confirm whether an advertised APY already reflects compounding.
18. Practical shopping checklist — step-by-step when comparing accounts
1. Confirm insurer (FDIC or NCUA) and use the insurer’s calculator for coverage.
2. Compare true APYs (not teaser rates) and compounding frequency.
3. Tabulate all fees and how they could apply to your typical activity (monthly, ATM, overdraft).
4. Check liquidity and early-withdrawal penalties for time deposits (CDs).
5. Test the online/mobile sign-in flow if possible (demo or screenshots).
6. Confirm how interest is posted and how often statements are delivered.
7. Ask about third-party sweep programs or external custodial arrangements and whether funds remain insured.
8. Read the account agreement for how interest rates can change and how the bank notifies you.
19. Common pitfalls to avoid
– Relying on promotional APYs without verifying the term and eligibility.
– Assuming sweep or brokerage “cash” is FDIC-insured
– Relying on promotional APYs without verifying the term and eligibility. Promotions often require a minimum balance, direct deposit, or are limited to new customers and revert to a lower rate after the promotional period.
– Assuming sweep or brokerage “cash” is FDIC-insured. Many broker sweeps place cash in multiple banks or in a broker-owned omnibus account; coverage can be extended but depends on how funds are held and registered.
– Treating interest rate language casually. “Up to X%” or “tiered” rates mean most balances may earn less; always confirm which tier your balance will fall into and how tiers are calculated.
– Overlooking ownership categories for deposit insurance. FDIC/NCUA insurance applies by ownership category (single, joint, trust, retirement). You can be underinsured at one bank even if you have less than $250,000 total across accounts.
– Ignoring fees and behavior tests. An account with low headline APY can cost you more in overdraft and ATM fees than you earn in interest.
– Forgetting state and local protections or lack thereof. Deposit insurance is federal (FDIC for banks, NCUA for credit unions); don’t assume additional state guarantees unless explicitly disclosed.
20. Quick pre-account checklist (step-by-step)
1) Confirm institution type and insurer: bank (FDIC) or credit union (NCUA). Find insurer status on the institution’s website or regulator site.
2) Use the Electronic Deposit Insurance Estimator (EDIE) or equivalent to model coverage for your exact ownership setup (single, joint, trust).
3) Ask for the APY and the compounding frequency in writing. Compare true APYs, not nominal rates.
4) Tally likely fees (monthly, ATM, overdraft, wires) and run an annual “net yield”: net return = APY − (annual fees ÷ average balance).
5) Check liquidity rules: withdrawal limits, notice periods, and penalties for early CD withdrawal.
6) Test login and security features (2FA, mobile check deposit, alerts).
7) Read the account agreement section on rate changes and notification processes.
21. Key formulas
21. Key formulas
Below are the core formulas you’ll use when comparing deposit products. Variables:
– P = principal (starting balance)
– r = nominal annual interest rate (as a decimal, e.g., 1.2% = 0.012)
– m = compounding periods per year (daily = 365, monthly = 12)
– t = time in years
– APY = annual percentage yield (effective annual rate, accounting for compounding)
– FV = future value after t years
– I = interest earned
– F = annual fees (dollars per year)
– TR = marginal tax rate on interest (decimal)
1) APY from nominal rate and compounding
APY = (1 + r/m)^m − 1
Notes: Use this to compare offers that quote a nominal rate (APR) with different compounding frequencies.
Worked example
– Nominal r = 1.20% = 0.012, compounding daily (m = 365)
– APY = (1 + 0.012/365)^365 − 1 ≈ 0.01207 = 1.207%
So a 1.20% nominal rate compounded daily yields about 1.207% APY.
2) Future value using nominal rate and m-period compounding
FV = P × (1 + r/m)^(m t)
Equivalent using APY (if you have APY directly)
FV = P × (1 + APY)^t
Worked example
– P = $10,000, APY = 1.207% (from example above), t = 3 years
– FV = 10,000 × (1 + 0.01207)^3 ≈ 10,000 × 1.0366 ≈ $10,366
– Interest earned I = FV − P ≈ $366
3) Continuous compounding (rare for consumer deposit accounts, included for completeness)
FV = P × e^(r t)
Use only when a product explicitly states continuous compounding.
4) Interest earned (simple)
I = FV − P
5) Convert APR to periodic rate
Periodic rate = r/m
Use this when the bank posts an APR but compounds periodically.
6) Monthly equivalent rate (from APY)
monthly_rate = (1 + APY)^(1/12) − 1
Useful for projecting monthly interest credits or monthly fee breakevens.
7) Net yield after fees (from your checklist item earlier)
Net return (annual) ≈ APY − (F ÷ average_balance)
Rearrange to find break-even balance (the balance at which fees wipe out earned interest):
Break-even balance = F ÷ APY
Worked example (fee breakeven)
– APY = 0.60% = 0.006, annual fee F = $60
– Break-even balance = 60 ÷ 0.006 = $10,000
If your average balance is below $10,000, the fee reduces your net yield to below zero relative to holding cash at that APY.
8) CD early-withdrawal net proceeds (conceptual)
If you withdraw early and incur a penalty measured in months of interest:
– Gross interest for time held = P × [(1 + r/m)^(m t_held) − 1] (or use APY for t_held in years)
– Penalty ≈ P × APY × (penalty_months ÷ 12) (banks may compute penalty differently; read the agreement)
– Net interest = Gross interest − Penalty
Worked example
– P = $10,000, APY = 2.00% = 0.02, held 1 year (gross interest ≈ $200)
– Penalty = 3 months = 0.02 × (3/12) × 10,000 = $50
– Net interest ≈ $200 − $50 = $150
9) After-tax yield