What type of account is typically used to hold escrow money?

An escrow account is specifically designed to hold funds that are being held for a particular purpose, such as security deposits or rent payments when dealing with residential leases. A non-interest bearing account is commonly used for this purpose because it helps ensure that the funds remain intact and are secured for the tenant, landlord, or other involved parties until they are needed.

Using a non-interest bearing account mitigates any potential issues that could arise from interest calculations or complications regarding the distribution of interest earned on the funds. In many cases, the terms of the lease agreement or state regulations dictate that the funds are to be returned to the tenant or landlord without any deductions for interest.

In contrast, an interest-bearing account might complicate matters, as the interest earned could potentially be claimable by one party over another. General brokerage accounts and personal checking accounts are not suitable for holding escrow money due to their specific purposes which do not align with the fiduciary role and protections required for managing escrow funds.