Bank account

A bank account is a financial account maintained by a bank or other financial institution for a customer. A bank account can be a deposit account, a credit card account, a current account, or any other type of account offered by a financial institution, and represents the funds that the customer has entrusted to or borrowed from the financial institution.

Part of a series on financial services
Banking
Accounts · Cards
Accounts
  • Christmas club
  • Deposit
  • Money-market
  • Savings
  • Time deposit (Bond)
Transaction (checking / current)
Cards
Letter from the Midland Bank to a customer, informing them on the introduction on electronic data processing and on account numbers for current accounts

The financial transactions which have occurred on a bank account within a given period on time are reported to the customer on a bank statement, and the balance on the accounts at any point in time is the financial position of the customer with the institution.

The laws of each country specify how bank accounts may be opened and operated. They may specify who may open an account, for example, how the signatories can identify themselves, deposit, withdrawal limits among other specifications. The minimum age for opening a bank account is most commonly 18 years of age. However, in some countries, the minimum age to open a bank account can be 16 years. In general, it is unlawful to open an account in a false name.

Nature of a bank account

In most legal systems, a deposit of funds in a bank is not a bailment - that is, the actual funds deposited by a person in a bank cease to be the property of the depositor and become the property of the bank. The depositor acquires a claim against the bank for the sum deposited but not to the actual cash handed over to the bank. In accounting terms, the bank creates (“opens”) an account in the name of the depositor or a name directed by the depositor in which the amount received by it is recorded as a transaction. The deposit account is a liability of the bank and an asset of the depositor (the account holder).

On the other hand, a bank can lend some or all of the money it has on deposit to a third party/s. Such accounts, generally called loan or credit accounts, are subject to similar but reverse principles of a deposit account. In accounting terms, a loan account is an asset of the bank and a liability of the borrower. Loan accounts may be unsecured or secured by the borrower, and they may be guaranteed by a third person, with or without security.

Account structure

From the customer’s point of view, bank accounts may have a positive, or credit balance, when the financial institution owes money to the customer; or a negative, or debit balance, when the customer owes the financial institution money.[1]

Broadly, accounts that hold credit balances are referred to as deposit accounts, and accounts opened to hold debit balances are referred to as loan accounts. Some accounts can switch between credit and debit balances.

Some accounts are categorized by the function rather than nature of the balance they hold, such as savings account, which routinely are in credit.

Financial institutions have an account numbering scheme to identify each account, which is important as a customer may have multiple accounts.

Types of accounts

All financial institutions have their own names for the various accounts which they open for customers, but can be categorised as:

  • Savings
    • Individual (UK)
    • Time deposit (Bond) / Fixed deposit
      • Certificate of deposit (USA)
    • Tax-exempt special savings account (TESSA) (UK)
    • Tax-Free Savings Account (Canada)
    • Money-market
  • Other types
    • Loan
    • Joint
    • Low-cost
    • Numbered
    • Negotiable Order of Withdrawal (NOW) (USA)

See also

References
  1. "What is debit balance? definition and meaning". Businessdictionary.com. Retrieved 2013-12-17.


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