If you’re wondering what is a holding account, you came to the right place.
Below, we dive into the specifics and answer the most frequently asked questions related to holding accounts in some of the most sought-after jurisdictions for banking, including both onshore and offshore options.
With this in mind, if you’re interested in a specific topic, use the table of contents to jump ahead.
Table of Contents
- What is Meant by Holding Account?
- What is a Holding Account for Investments?
- What is a Holding Account for Deposits?
- What is a Holding Account for Business?
- What Type of Account is a Holding Account?
What is Meant by Holding Account?
There are different types of holding accounts in banking. We break down some of the most common examples below.
What is a Holding Account for Investments?
A holding account for investments refers to an account where funds are deposited while awaiting allocation. Deposits into an investment holding account can be generated from existing investments (e.g. dividends or liquidation) or direct deposit (e.g. transfers from another account by the account holder).
Other types of holding accounts for investments include brokerage accounts and investment accounts. These types of accounts are available at banks, brokerages, and other financial service providers across international financial centers, small banking hubs, and onshore jurisdictions.
What is a Holding Account for Deposits?
A holding account for deposits refers to an account where funds are deposited by the account holder for a specific purpose.
In retail banking, this typically involves a savings account with limited outgoing transactions. Additionally, account holders are often incentivized to deposit through financial rewards or tax savings.
Examples of personal holding accounts include savings accounts, money market accounts, investment accounts, fixed term deposits (called a “certificate of deposit or CD in the United States), etc. Sometimes, these types of accounts are referred to as non-transaction accounts or non-payment accounts.
Importantly, different financial institutions will offer a range of holding accounts for different professions, residency types, or stages of life. So, it’s important to select the right holding account that matches your profile.
What is a Holding Account for Business?
A holding account for business refers to an account where excess capital is held. This capital is typically set aside to offset unforeseen expenses, to act as a financial cushion against any disruptions in revenue, or for future investments. In other words, a holding account is not an operating account that is used for day-to-day business transactions.
In this scenario, a holding account would typically involve a savings account or a fixed deposit. In some instances, business owners might choose to use the “laddering” strategy for fixed-term deposits of different maturities.
For example, instead of putting $100,000 into a 12-month fixed term deposit and locking up 100% of available funds, you can split it up (e.g. $25,000 at a 12-month term, $25,000 at a 6-month term, $25,000 at a 3-month term, etc.) This approach allows the business to access capital over time (if needed) but ensures the capital is still generating a return for the business.
Other strategies for business holding accounts might include using a combination of fixed-term deposit accounts and investment accounts. This approach ensures that the company’s excess free cash (that isn’t needed for day-to-day activities) is growing and earning a higher return.
What Type of Account is a Holding Account?
In summary, a holding account refers to an account that individuals or businesses can use to hold or accumulate capital for a given purpose.
If you’re considering opening a holding account, it’s important that you find the best possible account for you or your business. This involves choosing the correct jurisdiction (country or state), finding the right bank, selecting the right banker, and of course choosing an account with the right mix of services and fees.
If you need help sorting through your bank account opening options, feel free to contact us and we would be happy to help you get started in the right direction.
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