What it means
The defining feature is the combination of liquidity and yield. Money is available the same day, usually by transfer to a linked current account, and interest accrues daily on the cleared balance rather than only on a quarter end snapshot.
Rates on call accounts are variable, not fixed. The bank can change them at short notice, and they generally move with the central bank policy rate, so the yield rises and falls without any action from the account holder.
Banks often tier the rate by balance, paying more once the balance passes agreed thresholds. Some also set a minimum opening deposit, which is why these accounts are more common in corporate and institutional banking than in retail.
For a finance team the account is a cash management tool rather than an investment. Cash that is needed for payroll, tax payments or supplier runs cannot be tied up in a term deposit, but leaving it in a non-interest bearing current account gives away real money every month.
The main watch points are counterparty risk and deposit insurance limits. A large corporate balance sits well above any government guarantee, so treasury policies typically spread balances across several banks and set a minimum credit rating for each one.
In practice
Real-world examples.
Example
A construction firm receives a $1,200,000 stage payment that must fund subcontractor invoices over the next six weeks. It parks the money in a call deposit account, earns interest for the whole period and draws down in three tranches as invoices fall due.
Example
A charity holds a restricted grant that must be spent within the financial year but has no fixed payment dates. Trustees place it in a call account so the money remains instantly available while still generating a return that is credited back to the restricted fund.
Example
A software company sweeps any current account balance above $250,000 into a call deposit account every Friday afternoon under a standing instruction. Over a year the automated sweep adds roughly $30,000 of interest income with no change to how the business pays its bills.
Formula
Calculation
Interest earned = average balance x annual interest rate x (days held / 365)
A distribution business keeps an average balance of $500,000 in a call deposit account paying 3.6% a year, and reviews the position after one quarter of 90 days.
A full year at that rate would earn $500,000 x 3.6% = $18,000. For 90 days the interest is $18,000 x 90 / 365 = $4,438.36.
Had the same balance sat in the company's current account paying 0.5%, it would have earned $500,000 x 0.5% x 90 / 365 = $616.44. Moving the surplus cash therefore added $4,438.36 - $616.44 = $3,821.92 in a single quarter, for one transfer instruction and no loss of access.Case study
Seen in the real world.
The following is an illustrative and entirely fictional example. Penstock Marine Supplies, an invented ship chandler, held an average operating balance of $1,800,000 in a current account paying nothing at all. The finance director had considered a twelve month term deposit but rejected it, because seasonal buying meant the balance could drop to $400,000 within a fortnight.
The compromise was a tiered call deposit account paying 3.9% on balances above $1,000,000 and 2.4% below that. Assuming the full $1,800,000 sat in the account for a year, interest of $1,800,000 x 3.9% = $70,200 would be earned, against nothing under the previous arrangement.
The fictional treasury policy added two safeguards. Balances were split across two rated banks so no single counterparty held more than $1,000,000, and the account was linked to the current account with a same day sweep so the operations team never had to ask permission to access the cash.
Watch out
Common mistakes.
- Leaving large operating balances in a non-interest bearing current account because moving them feels like an unnecessary administrative task.
- Assuming the advertised rate is fixed, when call account rates are variable and the bank can reduce them at any time.
- Concentrating the entire cash balance with one bank and ignoring deposit protection limits and counterparty credit quality.
Questions
People also ask.
Is a call deposit account the same as a notice account?
No, a notice account requires you to give a set period of warning before withdrawing, whereas a call account allows access on demand.
How is interest on a call account taxed for a business?
It is normally treated as taxable income in the accounting period in which it is earned, and it is worth confirming local treatment with an accountant.
Can a business run its day to day payments from a call deposit account?
Usually not, since these accounts are designed for holding rather than transacting, so most are linked to a separate current account for payments.
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