What are main deposits? (with photos)

Money placed in an individual savings account forms part of a bank’s basic deposits.

Basic deposits are the main sources of money for local banks and credit unions. In general, basic deposits range from smaller sources, such as individual consumer savings accounts, to larger sources, such as commercial current accounts and money market accounts. One of the main uses of basic deposits is as a source of funds to provide loans to depositors. A financial institution often offers incentives to entice customers to choose specific deposit products, typically in an effort to increase and/or maintain its core deposit assets.

Banks typically earn a significant portion of their overall income from interest and fees associated with loans and other services that are made possible by basic deposits.

Most community banks and credit unions are built on the premise that the money customers hold in their various bank accounts will be used as collateral to make loans to other customers. These deposits made by regular customers are known as basic deposits and are typically central to the financial institution’s operation. Some of the more common sources include checks, savings, certificates of deposit (CDs), and money market accounts.

Financial institutions typically earn a significant portion of their overall income from interest and fees associated with loans and other services that are made possible by basic deposits. In general, the greater the number of customers and basic deposits the financial institution can attract, the greater its ability to lend money and generate income. Typically, the higher a bank’s revenue, the more it can grow and the more products and services it can offer.

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Due to the connection between basic deposits, product offerings and income, many banks and credit unions offer incentives to attract consumers and businesses to choose them. At the consumer level, these incentives may include tangible freebies, such as small home electronics such as digital music players, presented to the customer when he or she opens an account. They can also include less tangible rewards and savings, such as checking accounts with no minimum balance requirements or debit cards with no associated ATM (ATM) fees. For companies, incentives can include checking accounts with no maximum number of checks per month or CDs with higher-than-average rates of return.

In recent years, many financial institutions have found it difficult to maintain and/or increase core deposits. Economists believe a possible cause of this is the expansion of online financial institutions, which are often able to offer higher yields on products like certificates of deposit because they have lower overhead costs. Another possible cause put forward by many economists is the general trend of smaller consumer savings. The incentives described above are one of the primary methods many local institutions use to help combat the decline in core deposits.

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