Depository: Definition, Types, and How They Work

A depository is a facility or institution that accepts and safeguards assets—most commonly money or securities—and helps facilitate their transfer and trading. Depositories can be banks, credit unions, savings institutions, central securities depositories, vaults, or other organizations that hold assets for safekeeping and provide services such as settlement, custody, and funds transfer.

Key takeaways

• Depositories store and protect assets such as cash, securities, and precious metals, and they help execute transfers and trades.
• Common depository institutions include commercial banks, credit unions, and savings and loan institutions.
• Depositories create liquidity by accepting deposits and using them to fund loans, while offering depositors safety and (often) interest.
• Securities are increasingly held in electronic (book-entry) form, reducing risks associated with physical certificates.
• Deposit insurance (FDIC for banks and savings institutions; NCUA for federal credit unions) protects deposits up to statutory limits at participating institutions.

How depositories work

Depositories perform several core functions:
* Safekeeping: They protect cash, securities, and other valuables from theft, loss, damage, or fraud.
Custody and settlement: For securities, depositories maintain ownership records and transfer shares between accounts when trades occur, reducing paperwork and settlement delays.
Liquidity creation: Depositors place funds with the institution; those funds are often lent out as mortgages, business loans, or consumer credit, generating income for the depository while providing liquidity to the economy.
Account services: They offer demand-deposit accounts (e.g., checking, savings) that allow withdrawals on demand, and time deposits (e.g., certificates of deposit) that mature on specified dates and usually pay interest.
Electronic recordkeeping: Many depositories hold securities in book-entry form, which streamlines trading and lowers the risks of handling physical certificates.

Example: Central securities depository (Euroclear)

Central securities depositories (CSDs) provide post-trade services for financial institutions. For example, Euroclear settles domestic and cross-border securities transactions for banks, broker-dealers, and other institutional clients, handling a wide range of instruments—bonds, equities, convertibles, warrants, derivatives-related instruments, and investment funds—across many international markets. CSDs enable fast, secure settlement and custody of securities in electronic form.

Key considerations

• Transfer efficiency: Depositories speed up ownership transfers and reduce paperwork associated with trades.
• Risk reduction: Holding securities or bullion in a depository eliminates many risks tied to physical possession (theft, loss, damage).
• Delivery and settlement rules: For certain futures (e.g., gold futures), physical delivery requires approved depository warrants or holdings in approved depositories to complete settlement.
• Regulatory oversight: The type of depository determines its regulators and applicable protections (e.g., deposit insurance, custody rules).

Types of depository institutions

• Credit unions: Member-owned, not-for-profit institutions that return earnings to members as dividends and typically focus on consumer banking. Federally chartered credit unions are insured by the National Credit Union Administration (NCUA).
• Savings institutions (savings and loan associations): Traditionally focused on consumer mortgage lending and deposit accounts; many operate like commercial banks. Deposits at FDIC-insured savings institutions are covered by FDIC insurance.
• Commercial banks: For‑profit institutions offering a wide range of products (checking/savings, loans, credit cards, business services, investment products). Deposits at FDIC-participating banks are insured up to statutory limits.

Depository vs. repository

• Depository: A place or institution that physically or electronically holds and safeguards tangible assets (money, securities, bullion) and provides transaction and custody services.
• Repository: A storage location for intangible assets such as data, documents, or knowledge (for example, a software repository or an online content archive).

Non-depository financial institutions

Non-depository institutions do not take customer deposits as their primary funding source. They participate in financial transactions or provide financial products in other ways. Examples include insurance companies, investment firms, and certain brokers. These entities may hold or manage assets but typically do not function as custodial depositories for customer deposits.

Benefits of using a depository

• Safety and custody of assets, reducing physical and fraud risks.
• Access to banking services and payments infrastructure.
• Interest income on eligible accounts and potential dividends (credit unions).
• Liquidity support through the ability to withdraw funds or trade securities.
• Streamlined settlement and recordkeeping for securities in electronic form.

Bottom line

A depository secures and manages tangible financial assets—cash, securities, and bullion—while enabling settlement, custody, and funds transfers. Depository institutions underpin financial system liquidity by accepting deposits and extending credit. When choosing a depository, consider the type of institution, regulatory protections (including deposit insurance), custody practices (electronic vs. physical), and the services offered for the assets you need to safeguard.