The Nature and Classification of Deposits

The keeping of deposits is one of the chief functions of banks at the present time and is directly connected with the currency function. Two classes of deposits, however, must be distinguished.

A. Deposits of securities. The growth of so-called stock companies and the development of the credit system has brought into existence a great variety of securities the safe-keeping of which is a matter of prime importance. It rarely happens that the owners of these securities possess the same facilities for their safe-keeping as do banks whose business by its very nature compels them to provide large, strong, fire-proof safes, night-watchmen, and every other means for protection against robbers, fire, damp, and dust. Where deposits of this sort are large, special safes and strong rooms are provided, equipped with boxes for each depositor. Sometimes each individual has a key and ready access to his own strong box, and sometimes he secures his valuables only through the mediation of the bank's officials. In every case the securities deposited are kept by themselves, and are returned to the depositor upon demand, the bank merely acting as his agent and in no case acquiring the right of ownership in the paper itself.

B. Deposits of money. The most important form of deposits is that of money. People of all classes deposit with banks the greater part of the money which comes into their hands. Ordinarily one keeps on hand no more than is necessary to make small purchases or to transact current business. Merchants usually make a deposit every day of the cash received, keeping in their tills only a relatively small sum for the purpose of making change, while people with salaries and wage-earners deposit their funds monthly or weekly as they are received, unless they need to pay them out immediately in the making of purchases or in the settlement of accounts, in which cases the money is simply transferred to other people, who deposit it in the banks to their own accounts. It may be said, therefore, without exaggeration that the greater part of the money of a country sooner or later is deposited in the banks, and used as the basis of banking operations.

The universality of this practice is partly explained by the fact that money is safer in banks than elsewhere. If each one were obliged to keep his own funds, robbery would become a profitable business, and the problem of police protection in every large city would be much more complicated than at the present time. It is also an economical practice. If deposits are allowed to remain a considerable time, a small rate of interest is usually paid, and besides a heavy bill for expense of safes, watchmen, private detectives, and criminal prosecutions is thus saved. The item of safety alone was formerly considered so important that depositors were willing to pay to the banks a considerable fee for the service of keeping their funds, and probably many people would still find it profitable so to do, were it necessary.

According as the depositor acquires the right to demand legal-tender money from the bank whenever he may desire, or only after the lapse of a specified period of time, deposits are usually classified as current accounts and time deposits. This distinction is chiefly important on account of the fact that the use to which the bank is able to put the funds left with it is apt to be different according as they belong to the one class of deposits or the other. Current accounts consist of the capital of the community which is "turned over" frequently, as, for example, the funds used in the purchases of the goods of retailers, those required for the periodical payments of wages and salaries, the purchases of materials used in manufacturing, the payment of current household expenses, etc., etc. Time deposits consist chiefly of savings on their way to more or less permanent investments. Most people accumulate their savings little by little, leaving with the banks their surplus earnings or receipts until the amount accumulated is sufficient to purchase some sort of security or securities which will yield them a higher rate of interest than the banks pay or enable them to share in the earnings of some branch of industry.