A depository is a financial company that lets you store assets with it. Those assets could include cash or stocks.
When you open a bank account and keep money in it, you are using a depository.
Similarly, if you open an account with a broker and buy shares, a depository will be looking after your investments.
Why are depositories important?
Cash depositories are important because they keep your money safe and make your life easier.
Imagine keeping all of your money at home. This would be risky because you could lose everything if you were robbed.
On a more practical (and less scary) level, it would be incredibly inconvenient. You would have to find space to store your money and constantly carry around physical cash to meet your expenses.
Depositories for stocks and shares play a similar role to banks in making investing a simpler and safer process.
Holding and transferring physical stocks is a bureaucratic process that requires certain security measures. Having a depository handle theses processes makes your life easier and your investments safer.
Depositories and the markets
Depositories don’t just keep your money safe. They also play a vital role in making markets work and keeping the economy moving.
Banks, for example, will lend out cash to borrowers. In turn, these people might buy a house or build a business — things that boost the economy. This process also helps people keeping money with a depository as they will usually get paid interest on their holdings.
On top of this, banks may invest in stocks and shares themselves, which should also help companies looking to raise funds and, in turn, help economic growth.
Lastly, depositories offer a way of transferring funds between different people. That also helps the economy function by letting people pay for goods and services.
