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What Is a Deposit Agreement?
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Other Names for Deposit Agreement
- Deposit Agreement Form
- Deposit Agreement Document
- Deposit Agreement Agreement
- Deposit Agreement Contract
- Deposit Agreement Template
- Deposit Agreement Checklist
Who Needs a Deposit Agreement?
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Frequently Asked Questions
The only difference between these two documents is the institution issuing them. While an insurance company gives a GIC, a Deposit Agreement comes from a bank.
A Deposit Agreement differs from a Certificate of Deposit in two crucial ways. Firstly, a Deposit Agreement allows multiple deposits to be made over time, while a Certificate of Deposit will require the entire sum invested at once.
The second difference is that, with a Deposit Agreement, you can withdraw funds before the end of the contract in specific circumstances. Reasons for premature withdrawal can include the Depositor retiring, losing a job, or experiencing other forms of hardship. With a Certificate of Deposit, these options are primarily unavailable.
In the case of deposits made to a bank, the bank and the investor will face certain liquidity and interest rate risks. Depending on the interest rates, the bank might become unable to make profitable investments to increase deposits' returns. On the other hand, if rates cause withdrawals to outgrow investments, the bank will fall under increased pressure to keep more funds fluid.
Finally, a fixed rate Deposit Agreement might be influenced by inflation, which can minimize the returns even for more extended holding periods.
Pension plans are among the most common customers for Deposit Agreements with banks. In most cases, individual investors participate in their pension plans and become indirect investors. Certain institutions offer an alternative to this model by directly forming agreements with individual investors.
A Deposit Agreement is, in most cases, involved in buy-and-hold investing, which means there isn't a secondary market. Deposit Agreements usually provide better returns than options such as treasuries or savings accounts.
Deposit Agreements perform better than other options because treasuries and savings accounts aren't insured by the FDIC or backed by the U.S. Government with credit and complete faith. Deposit Agreements have a relatively dependable backing because they lean on the bank's creditworthiness. For this reason, a Deposit Agreement is considered to be a safer, albeit low-return, form of investment.