Banking Term of the day : Escrow Accounts


Banking Term of the day

Banking Awareness is considered to be the high scoring section in any competitive exam. In this article, we will discuss on important Banking Awareness topic “Escrow Accounts that are covered in almost all competitive exams. Also, you can download the PDF of lists of different Banking Awareness topics.

In Banking Section, the questions are asked from following topics: History of Banking, banking terms, Marketing of Banking Products, Functions of Banks, Banks and their taglines, schemes, committees related to banking, headquarters of bank, some Banking news related, apps launched by banks, new schemes etc. 

In a series of sharing useful study material for upcoming banking exams. Here, we are providing Banking Term of the day for all banking Exams (IBPS, SBI & Other Banking Exams).

Escrow Accounts

Escrow is the use of a third party capable of holding assets on behalf of two parties who are in the process of completing a transaction. The asset could be money, funds, stocks etc. The third-party holds these, often called the escrow agent, until instructions regarding disbursement are received, or as per predefined timeline. Thus, an escrow accounts is the third party account which holds the asset until the conclusion of a specific event or time.

The term “escrow” originates from the French term “escroue” which means a scrap of paper signifying a deed that is held by a third party. In simple language, the escrow accounts can be regarded as a third-party account. It can be a bank account where the asset value is held until the fulfilment of specific conditions of the transaction. An escrow arrangement safeguards the seller against any risk of payment default by the buyer as it removes the control of cash flow from the buyer to an independent party.

The holder of the escrow account makes sure that the amount is released on the fulfilment of specified conditions. Let us take an example. If you are selling your product in the overseas market, you need to have the assurance that you will receive the payment when your buyer receives your goods. Similarly, the buyer would want to release the payment only when he or she is assured that the goods are certain to reach the port of destination. An escrow accounts satisfies both these expectations and offers the safety that is required to go ahead with the transaction.

Thus in a transaction where escrow account is used, the following activities take place,

  • The buyer and the seller agrees on the terms and conditions
  • The buyer pays the amount into the escrow account
  • The seller performs the service/ships the goods
  • The buyer receives the same

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