Depository refers to any institute, place, or organization that keeps financial assets (including credits and other valuables) in a dematerialized form. It can be a bank, saving institute, or entity that holds securities and supports security trading. In the same manner that bank accounts keep money, depository accounts hold securities.

Depository keeps your money safe and free from potential risk. It also refers to a place where anything is stored or protected. Therefore, a depository can be an organization or a warehouse that allows people and organizations to store valuables.

How Does It Work?

The main responsibility of a depository is to hold your money. It keeps the money secure, and you can also access it when needed. Credit unions and commercial banks are two such examples.

The depository gets most of its funds from deposits and generates money by lending it to other people as loans and mortgages. The funds placed in a depository are invested in other assets and lent to other individuals or companies. Therefore it creates liquidity in the stock market.

Depository funds can be in the form of direct deposits from clients, deposits from an ATM, digital transfers from other banks, and check deposits into the bank. It is also an insured and safe method because it is federally insured. You are assured of receiving your money back, up to a specific amount, even if the institution fails.

Types Of Depositories

There are three types of depository

1. Commercial Banks

Commercial banks are often privately owned and for-profitable businesses. They provide standard banking services to both consumers and businesses. These banks offer a variety of services, depending on their size. For instance, the market options are particularly constrained for the smaller banks. Their services include consumer banking, simple deposits, and smaller loans.

On the other hand, the larger and other international banks provide a wider range of services, such as investment banking, foreign currency exchange, and other major services like money management. They also provide their services to other banks and more prominent corporations.

Commercial banks are authorized by the federal and state to take deposits and pay interest to investors. They provide individuals with services such as savings accounts, checking accounts, and loans. Commercial banks are also suited to provide businesses with financial services such as international trading, deposit accounts, payment processing, credit lines, and business loans.

2. Credit Unions

Credit unions resemble cooperatives in the banking industry. After paying a small membership fee, the credit union begins to pay you interest monthly or for three months.

The mission of credit unions is to serve their local communities by offering financial services. Credit unions don't pay federal or state taxes because they are non-profit organizations. As a result, they charge lower interest rates on loans. They are known to provide greater interest rates than traditional banks.

3. Thrift Banks (Savings and Loan Banks)

Savings organizations are called thrift banks. Savings institutions are the local community banks and loan organizations.

They provide services like traditional banks, including credit cards and loans, but their main areas of specialization are savings accounts and loans. Thrift organizations were created primarily to help middle-class families achieve homeownership.

Savings banks are businesses or financial organizations that give their depositors an ownership stake in the company. Local people deposit money in the banks, which provide them with loans for small enterprises, credit cards, mortgages, and consumer loans.

Benefits Of A Depository

Keeping your savings in a depository is secure and has several benefits. Depositories can help you earn interest, eliminate the risk of holding physical and financial securities, and, most importantly, provide loans to interested people or businesses that contribute towards economic growth.

Secure

Keeping money at home is a bit risky. It can increase the risk of robbery and can put lives at stake. The depository is a safe and secure way to protect your savings and reduce theft risk. The depository holds your money for you, and the federal insurance ensures you will get your full deposit back whenever you want, up to a certain amount.

Earning Interest

The biggest advantage of keeping your savings in a depository is that it is secure and safe and will pay you back in the form of interest. The percentage of interest depends on what type of deposit account you have chosen.

Time deposit accounts usually pay more than demand deposit accounts. Time deposit accounts such as Certificates of Deposits or CDs give the bank full authority to access your deposit until it matures.

While demand deposit accounts such as savings and checking accounts pay a small percentage of interest, they offer immediate access to your deposit whenever you want.

Economy Growth

The depository doesn’t pay you interest on its own. The depository uses your money to give loans and mortgages to small businesses or people that need money and can pay it back. They get the interest on the loan and give you a small portion of the interest in return. So, it is a win-win situation for all. This consistent money flow from the depositor to the borrower helps improve the economy.

Allows The Provision Of Loans Or Mortgages

A depository system allows digital maintenance and transfer of securities to reduce the potential risk associated with money transfer. It also keeps assets in the dematerialized form, allowing investors to lower the risk of holding physical, financial securities. Further, the efficient transfer of the securities without loss or theft is no longer subject to verification by buyers and sellers.