What is a Bank Deposit, Meaning, Types & How it Works?

Some people have the habit of spending everything they earn and not saving anything for the future. However, if one continues this, he or she might not get money in a time of need and consequently suffer from several financial problems. This is where bank deposits come into the scene.

In this article, we have discussed some important aspects of bank deposits and their working.

Bank deposits fall under the category of savings products, where the customers deposit a certain amount of money in their chosen bank for a stipulated time period. In return for this, the bank is supposed to pay the customer a certain amount of interest depending on the amount of money they have deposited.

Once the stipulated time gets over, the bank is liable to return the deposited amount and the interest the money has incurred over the stipulated time. However, the interest rates are slightly lower than those of equity or fixed-income deposits.

Once a customer opens a deposit account and subsequently puts cash in it, the customer no longer holds the legal title to the money, and it becomes an asset for the bank. Therefore, the deposit made by the customer works as the bank's liability against the depositor.

There are two types of bank deposits: Demand and Term Deposits.

1. Demand Deposits: In this type of deposit, the customer can withdraw his money (either whole or a part of it) as per their needs, and that too without getting a penalty for that.  
2. Term Deposits: In the case of term deposits, the money should be held in your chosen financial institution for a particular time. At this specific time, the money earns interest from the institution dispensing on the money that we have deposited in the bank.

Now, you can also withdraw money in this type of deposit but you will have to face a penalty owing to the early withdrawal, so think twice before depositing the money.

Deposit Insurance is a safety measure implemented by many countries to safeguard their financial system whenever any bank fails to pay back its debts. Deposit Insurance stands as a solid pillar of financial stability. 

Deposit Insurance was introduced in India back in 1962 and started functioning on 1st January 1962. The deposit insurance is currently fixed at ₹5,00,000 after the amendments made in 2020.

Bank deposits are a proven way to help you save your money and grow it gradually. You can go for any type of deposit that is suitable for your condition and start saving money!