Leasing License Practice Exam

What type of account should escrow money be maintained in?

1. A regular checking account

2. A local bank account

3. A special (trust) FDIC account

4. An investment account

The correct answer is: A special (trust) FDIC account

Escrow money should be maintained in a special trust account, often referred to as a trust or escrow account. This type of account is distinct from regular checking accounts and is specifically designed to hold funds on behalf of a party involved in a transaction, such as in a real estate deal. The purpose of using a special trust account for escrow funds is to ensure that the money is kept separate from the personal or operational funds of the entity holding the escrow. This separation helps protect the funds and ensures they are used solely for their intended purpose. Furthermore, these accounts are typically regulated to provide additional safeguards, maintaining the integrity and safety of the funds until all conditions of the escrow agreement are fulfilled. Using a regular checking account or a local bank account does not provide the same level of protection and oversight that trust accounts offer, making them less suitable for handling escrow funds. An investment account, while it may yield some return, would not be appropriate for escrow because the funds must remain liquid and readily accessible, without the risk of market fluctuations.