4. Financial management of an enterprise. Bank deposits. (ebb Unit XII)

The accounts customers or clients hold with the bank have credit balances and are called deposits. Deposits are the raw material of banking and, thus, represent the ultimate source of bank profitability and growth. They are a unique item on a bank’s balance sheet that clearly distinguishes a bank from other types of business firms.

There are two main types of accounts opened by the British clearing banks for their customers: the current account and the deposit account. Some banks provide a savings bank accounts. The banks do not pay their customers any interest on current accounts, but provide some free of charge services to the holders and issue them with checkbook. An account of checks paid, credits received and resulting balances is printed out by the bank’s computer and sent to the customer. If an account becomes overdrawn a special code sigh warns the account holder that his balance is in the debit. In case of overdrafts, a bank levies extra charges.

Banks pay interest on deposit accounts. For years, the rate was fixed at 2 percent below bank rate but now the bank key their rates to a base rate that varies with the money market rates.

In the USA, there are three main types of deposits. Demand deposits are similar to current accounts. There are more commonly known as checking accounts because they are seems standing to the credit of the customer which the bank undertakes to make immediately to meet checks drawn against them, or of course as cash across the counter.

Savings deposits generally are in small dollar amounts; they bear a relatively low-interest rate but may be withdrawn by the depositor with little or no notice. These deposits are designed to attract funds from customer who wish to set aside moneys in anticipation of future expenditures.

Time deposits may be divided into nonnegotiable certificates of deposit, which are usually small, consumer-type accounts, and negotiable certificates of deposit, that may be traded in the open market and purchased mainly by corporations.

During the 1970s and 1980s new forms or checkable (demand) deposits appeared, combining the essential features of both demand and savings deposits. These transaction accounts include negotiable orders of withdrawal (NOWs) and automatic transfer services (ATS). NOW accounts may be drafted to pay bills but also earn interest, while ATS is a pre authorized payments service in which the bank transfers funds from an interest-bearing savings account to a checking account as necessary to cover checks written by the customer. Two relatively new transaction accounts - money market deposits accounts (MMDAs) and Super NOWs - were offered in 1983. MMDAs, designed to compete directly with the high yielding share accounts offered by money market mutual funds, and Super NOWS may carry prevailing market rates on short-term liquid funds. Both can be drafted by check, automatic withdrawal, or telephone transfer, but the number of permissible withdrawals from MMDAs is limited. MMDAs may be held by an individual, business firm, or unit of government, but Super NOWS can be held only by individuals, governments, and nonprofit organizations.