Bank account

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Letter from the Midland Bank to a customer, informing them on the introduction on electronic data processing and on account numbers for current accounts 1967 Midland Bank letter on electronic data processing.JPG
Letter from the Midland Bank to a customer, informing them on the introduction on electronic data processing and on account numbers for current accounts

A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the terms and conditions for each type of account it offers, which are classified in commonly understood types, such as deposit accounts, credit card accounts, current accounts, loan accounts or many other types of account. A customer may have more than one account. Once an account is opened, funds entrusted by the customer to the financial institution on deposit are recorded in the account designated by the customer. Funds can be withdrawal from loan accounts.


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

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.

Opening an account

Each financial institution sets the terms and conditions for each type of account it offers, and when a customer applies for the opening of an account, and accepted by the institution, they form the contract between the financial institution and the customer in relation to the account.

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, and accounts may be opened in the name of minors but operated by their parent or guardian. In general, it is unlawful to open an account in a false name.

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

Each financial institution has its own names for the various accounts it offers to customers, but these can be categorised as:

See also

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Debits and credits amounts added or subtracted to account ledgers

In double entry bookkeeping, debits and credits are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value to that account, and a credit entry represents a transfer from the account. For example, a tenant who pays rent to a landlord will make a debit entry in a rent expense account associated with the landlord, and the landlord will make a credit entry in a receivable account associated with the tenant. Every transaction produces both debit entries and credit entries for each party involved, where each party's total debits and total credits for the same transaction are equal. Continuing the example, the tenant will also credit the bank account from which they pay rent, and the landlord will debit the bank account where they deposit it.

Fractional-reserve banking banking system where bank holds reserves equal to fraction of deposit liabilities

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A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms they are considered as cash.

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A certificate of deposit (CD) is a time deposit, a financial product commonly sold by banks, thrift institutions, and credit unions. CDs differ from savings accounts in that the CD has a specific, fixed term and usually, a fixed interest rate. The bank expects CD to be held until maturity, at which time they can be withdrawn and interest paid.

Savings account type of account maintained by retail financial institutions

A savings account is a bank account at a retail bank whose features include the requirements that only a limited number of withdrawals can take place, it does not have cheque facilities and usually do not have a linked debit card facility, it has limited transfer facilities and cannot be overdrawn. Traditionally, transactions on savings accounts were widely recorded in a passbook, and were sometimes called passbook savings accounts, and bank statements were not provided; however, currently such transactions are commonly recorded electronically and accessible online.

Overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero

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Payment card card that can be used to make a payment

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An ATM card is a payment card or dedicated payment card issued by a financial institution which enables a customer to access automated teller machines (ATMs). ATM cards are payment card size and style plastic cards with a magnetic stripe or a plastic smart card with a chip that contains a unique card number and some security information such as an expiration date or CVVC (CVV). ATM cards are known by a variety of names such as bank card, MAC, client card, key card or cash card, among others. Most payment cards, such as debit and credit cards can also function as ATM cards, although ATM-only cards are also available. Charge and proprietary cards cannot be used as ATM cards. The use of a credit card to withdraw cash at an ATM is treated differently to a POS transaction, usually attracting interest charges from the date of the cash withdrawal. Interbank networks allow the use of ATM cards at ATMs of private operators and financial institutions other than those of the institution that issued the cards.

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Credit card card for financial transactions from a line of credit

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Diamond–Dybvig model

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Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.

Bank Financial institution that accepts deposits

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A joint account is a bank account that has been opened by two or more individuals or entities. Joint accounts are commonly opened by close relatives or by business partners, but it can be used in other circumstances, such as by a club committee.

Liability (financial accounting) future sacrifices of economic benefits that an entity is obliged to make to other entities as a result of past transactions or other past events

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Reserve Requirements for Depository Institutions is a Federal Reserve regulation governing the reserves that banks and credit unions keep to satisfy depositor withdrawals. Although the regulation still requires banks to report the aggregate balances of their deposit accounts to the Federal Reserve, most of its provisions are inactive as a result of policy changes during the COVID-19 pandemic.

A deposit account is a bank account maintained by a financial institution in which a customer can deposit money and which can be withdrawn. Deposit accounts can be savings accounts, current accounts or many other typed of bank account.


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