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. That enormous quantities of these securities should, therefore, be entrusted to the safe-keeping of banks is natural, and that special institutions for the performance of this function should have developed in large business centres is not surprising. 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. As we shall soon see, bankers are now able to make such profitable use of the funds left with them that they can afford to abolish all fees, and in certain cases invite deposits by the payment of a small rate of interest.

A very important distinction must be noted between this class of deposits and that of securities. When money is left with a bank it ceases at once to be the property of the depositor and passes into the ownership of the bank. The depositor is credited with the amount on the bank's books, and thereby acquires the right to demand legal-tender money either at any time he may desire or after the lapse of a specified number of days, weeks, or months, but he has no right to demand the identical coins, checks, and notes which he deposited, unless a special agreement to this effect is made. The right of the bank to use the money as its own private property, subject, of course, to the regulations imposed upon the conduct of this branch of business, is recognized by the laws of all the great nations and is characteristic of modern as distinguished from earlier institutions. Until comparatively recent times deposits of money were exactly like deposits of securities at the present day. It still remained the property of the depositors, and banks were expected to keep it constantly on hand subject to their orders. When bankers first began to loan at interest the funds entrusted to them for safe-keeping, they were really violating a trust and were punished when they were discovered. The old Bank of Amsterdam secretly indulged in this illegal practice for years, and, when it was finally discovered, lost its right to do business. The present legal position enjoyed by banks is the result of an understanding of the nature of their business by statesmen and legislators and of an appreciation of its importance. At the same time the acquisition of the privilege of using deposits for purposes of private profit, on the one hand, has rendered necessary the safeguarding of the banking business by legislation, and, on the other, has made possible the development of new methods.

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. While they are subject to the call of depositors, they usually remain with the bank for several days and sometimes for longer periods of time, and a percentage of them remains permanently, many people making it a practice always to keep a fair balance at the bank, and thus never completely exhausting their accounts. 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. There are very few forms of permanent and profitable investment in which small sums can be used. Capital which is being transferred from one form of investment to another usually takes the form of time deposits during the interval between the leaving of the one form and the passage into the other, unless that interval is very short, in which case it swells current accounts. From the standpoint of the bank, therefore, the chief distinction between current accounts and time deposits consists in the fact that in case of the former the length of time during which it may safely invest them is shorter and less certain than in that of the latter.