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 Demand Deposits – are those which are withdrawn upon the presentation of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 Time deposits – are those which can be withdrawn after a certain period of time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the deposit can only be withdrawn at maturity or after due notice of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that neither all nor part may be withdrawn before the maturity date or at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.

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 c. Savings deposit – are evidenced by a passbook and can be withdrawn only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bank’s policy .These deposit may be withdrawn on demand provided the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
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
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 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

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
customer-depositor. 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.

 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.

 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.

 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 responsibilities attached to his duties. In regard to the currency,
the teller is responsible for:
a. Errors in counting the money deposited.
b. Presence of mutilated or counterfeit money.

For the credit instrument that the teller receives for deposits, he has to be careful
in order to avoid responsibilities in connection with:

1. Postdated checks – checks which are dated after the date of deposit are known as
post-dated checks. The teller should not receive such checks for deposit as he
cannot be sure whether they shall be honored.

2. Stale checks – are those are dated very much earlier, say about a month, from the
date of deposit.

3. Material alterations – may be on the date, the amount (that is, the amount in
words do not tally with the amount in figures), the payee. The teller must see to
it that any changes made on the face of the instrument are properly initialed by
the drawer.

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 4. Wrongly endorsed instruments – In case the instrument is not endorsed according
to the name appearing on its face, the teller should require the depositor to
correct the wrong endorsement. The teller should make the depositor correct the
endorsement by making the endorser sign his regular signature with the middle
initial. This will ensure the identity of the endorser beyond reasonable doubt,
and also his corresponding liability.

For both currency and credit instruments, the teller is responsible for:
1. Carelessness in adding deposit slips – this refer to proof sheets rather than the
individual deposit slip. It may be that the teller is not very careful in adding so
that the amount of deposits may not tally with the actual currency and credit
instruments.

2. Carelessness in designating the account to be credited – it may happen that there

are several depositors with identical names. The teller must see to it that the
right person is duly credited for the deposit. Careless crediting of proper
accounts may eventually lead to bank embarrassment or even loss. The teller
should make it a point to check the account number.

Deposit Slips (Tickets) and deposits Items

The deposit function entails the distribution of the deposit slips and the deposit
items. Such function is performed by the receiving teller. The distribution is handled
physically as follows:
1. Deposit Slips – are the forms filled in by the depositor when he makes a
deposit.
2. Deposit Items – comprises of cash and credit instruments or other items and
are distributed as follows

The Paying Teller

Also is the one who pays out cash in exchange for checks and other instruments.
Attached to his duties, he examines the items exchanged for cash in relation to:

a. The date of the check- he makes sure that the check is neither post-dated nor
stale. If post-dated he must not pay, if stale he should likewise not pay but
request the person presenting it to refer the same to the drawer of the check. He
also checks the regularity of the date of the check.

b. Wrong endorsement- the receiving teller must be sure that the endorsement is
correctly effected at the back of the instrument.

c. Material Alteration- this refers to the erasures or change in the date, the payee,
or the amount in words and figures.

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 d. Forgery- this is the concern of the paying teller as he access to the depositor’s
specimen signature before payment.

e. Crossed check – are of two kinds, either crossed specially or generally. The paying
teller should scrutinize the check to determine the extent of the bank’s
commitment on such checks.

f. Stop-payment order – when a check is lost or for any other reason the owner
wishes to withhold its payment, the drawer requests the bank to stop its
payment, the bank provides a signal to indicate “Stop Payment Order”.

g. Insufficient funds – the paying teller must also determine whether or not the
drawer of the check has sufficient funds to cover the same.

h. Erroneous payment– A paying teller should count the money to be paid at least
twice. For he may overpay or underpay.

i. Supply of cash – a paying teller, through constantly doing the same work, should
be in a position to know how much gets from the cashier to meet requirements.

Current versus Savings Account

There are some significant differences which the tellers must be aware of
and which the depositor must know in order to keep his account with the bank.
Such distinctions will be in the initial deposit, the service fees, the penalty for
issuance of bouncing checks, the age of depositor, the minimum balances for
purposes of interest payments or imposition of service charges and others.

“There is no such thing as loss. There is only the opportunity to begin again.”

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