Definition Definition

Escrow Account

An Escrow Account is an account for which a bank acts as an uninterested third party (custodian/depository) to ensure compliance with the terms of the deal between two parties only upon the fulfillment of some stated conditions. 

The account becomes operative on the occurrence of the stated event. Banks hold such accounts in which funds accumulate to pay taxes, insurance on the mortgaged property, etc.

An escrow account will hold the asset at stake so that the transacting parties are more responsible for their choices while they try to hold their end of the bargain. 

Only if and when the conditions are met will the account release the asset given to it for safekeeping so that nothing goes wrong in the transaction. 

The escrow account (the bank account) or the escrow agent (the bank) does not get anything in return for their part in the deal. 


For example, there are escrows in situations under real estate, online sales, and the stock market. In the real estate business, escrows are really necessary. A buyer may like a house but only agree to pay the seller and finalize the buy upon a thorough inspection. 

In that case, they can agree for the buyer to pay the payable amount to an escrow account so that when they are happy with their inspection, the paid amount can be transferred to the seller.


Use the Term in Sentences

  • Escrow accounts often result in higher mortgage payments.


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