Chapter 8 Deposit Function PDF

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Bukidnon State University City of Malaybalay College of Business

FM103 (Banking and Financial Institutions)

CHAPTER 8 DEPOSIT FUNCTION

Deposits Defined - Represented by money or representative money entrusted to banks for safekeeping. - The keeping of valuables such as jewelry and other important documents. - Deposits are money borrowed and makes a bank a debtor. - Deposits are liabilities of the bank, failure on its part to meet the depositors demand will give the depositor’s right of recourse against the bank. - Section 58 of the New Central Bank Law of 2000 (7653) which states that the term “demand deposits” means all those liabilities of the BSP and of other banks which are denominated in the Philippine currency and are subject to payment in legal tender upon demand by presentation of checks.

Types of Deposits 1. Demand Deposits – are those which are withdrawn upon the presentation of checks during banking hours. This type of deposit does not receive interest in modern times. 2. Time deposits – are those which can be withdrawn after a certain period of time or at a designated maturity. The depositors place their excess funds as rime deposits for varied purposes. For this reason, this type of deposits is further subdivided into the following: a. Time certificate of deposits – this is evidenced by a certificate to the effect that the deposit can only be withdrawn at maturity or after due notice of withdrawal, usually thirty days, and upon presentation and surrender of the instrument. b. Special time deposits- this type is evidenced by a written contract to the effect that neither all nor part may be withdrawn before the maturity date or at least upon due notice of at least thirty days. c. Savings deposit – are evidenced by a passbook and can be withdrawn only upon due notice of at least thirty days or depending upon the individual bank’s policy .These deposit may be withdrawn on demand provided the bank is in position to meet the demand of the depositor. 3. Direct or primary deposits – are those which are made “over the counter” when the depositor himself brings his money and/or checks and other near cash items to the bank and hands them to the teller. Sometimes, the depositor may send his

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representative to deposit for him. For e-bankers, depositors can deposit through ATM’s after they have registered personally at the bank. 4. Derivative deposits – are created from the proceeds of loans. The borrower enters into an arrangement that the bank places the loan proceeds under a current account from which he can draw checks eventually. The derivative deposits increase the volume of money because they represent new money created by the bank out of proceeds of the loans.

Kinds of Depositors The deposits may come from either individuals or businesses and from the government and its instrumentalities and political subdivision. When funds are deposited by individuals or businesses, these are known as individual deposits or business accounts. If the government is the depositor, they are termed government deposits. The bank may also deposit money with other banks on reciprocal basis. These are classified as interbank deposits. The banks are known as correspondents. Such deposits provide for the exchange of funds between banks for varied purposes. The deposits made by these depositors may be either demand or time pin conformity with the method of withdrawal and according to the reason of the deposit in keeping his funds in the bank. They may also consist of primary or direct deposits or derived from proceeds of loans.

Motives of Depositors 1. Safety – the depositors place their excess funds in the bank because they are aware that modern banks have fireproof and burglarproof safes and vaults to keep money in. 2. Convenience- when the depositor is prompted by the convenience offered through depositing, he opens a current account which is serviced by the used of checks. Thus, he could pay his bills in exact amounts, he could carry large amount of money safely and portably, he could use his cancelled checks as a receipt, and he could issue a stop payment order if he draws the check erroneously or loses the same. 3. Earnings or Income – A person places his money as time deposits if he is after earnings or income. Only time deposits of varied types earn interest. Service charges are also nominal if he has pay at all. 4. Accommodation–Business deposit their money because of the special favors they want from banks. Lines of credit may be accorded to them upon proper arrangements. They could also deal in trade by having the bank as guarantor through the issuance of letters of credit.

The Deposit Function

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All the officials of the bank down to the entry-level employee perform the deposit function in the sense that they indirectly contribute to the satisfaction of the customerdepositor. Directly, however, the teller system employed by banks performs the operations connected with the receipt of deposits and other allied activities. The bank if relatively small sized, may employ a single teller system where one teller performs both the receiving of deposits and the paying out of checks and other instrument exchanged for cash. Each of the tellers assigned to specific jobs shall, therefore, have their own responsibilities and duties. Modern banks have acquired many new methods to improve service as well as mechanized devices to step up the bank’s multifarious activities. Banks employ several tellers in order to give maximum service benefits to their customers. Also, teller functions are done through electronic devices such as ATM’s, phones, mobile and the internet. To a bank, the paying teller has a great amount of responsibility because his negligence may lead to losses on the bank’s part. However, the teller who performs the first step in the deposit function is the receiving teller; for it is he who accepts deposits for and in behalf of the bank.

Receiving Teller 

The receiving teller receives and verifies deposit items and deposit slip, gives proper receipt for the deposit made, distributes the items deposited, and finally checks and proves the day’s work.

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When a customer-depositor approaches the receiving teller, he hands the duly accomplished deposit slip indicating there in the cash and other instruments presenting cash in some detail.

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Upon receipt, the teller examines the deposit slip to ascertain, among other things. He also sees the detailed description of the credit instruments are in order. Then he segregates the currency into the different denominations in the compartments for this purpose in the drawer. He examines closely the credit instruments for any defects and if he finds none, marks them non-negotiable. After the verification, he places the duplicate of the deposit ticket into the machine to acknowledge receipt of the deposit indicated passbook.

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At the end of the day, the teller sorts out all the items deposited comprising of cash, checks, and other credit instruments ready for distribution to the proper departments. As the teller performs the other functions, he fills in the proof sheet indicating the deposits received and at the end of the day, he merely goes over the same to see for errors.

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In the receipt of the item deposited, the receiving teller exercises due care and diligence in examining the cash and the credit instruments so that he may be relieved of the

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