Definition
An escrow account is a secure account where funds are held temporarily by a neutral third party until predefined conditions are met, often used in marketplaces, real estate, and high-value transactions.
How this works
Funds from a buyer are deposited into the escrow account. The third-party or platform verifies that the transaction conditions are fulfilled. Once confirmed, funds are released to the seller or beneficiary. If conditions aren’t met, funds are returned to the payer.
Benefits
• Ensures trust between parties in a transaction
• Reduces fraud risk
• Provides clear terms and conditions for fund release
• Improves buyer-seller confidence
• Facilitates compliance and legal security
FAQs
Q1. Who manages an escrow account?
It is managed by a neutral third party such as a bank, payment provider, or platform.
Q2. When are funds released from an escrow account?
Funds are released once predefined conditions of the transaction are verified and fulfilled.
Q3. Can escrow accounts reduce fraud?
Yes. Holding funds securely until conditions are met prevents unauthorized payments and fraud.
Q4. Are escrow accounts used in online marketplaces?
Yes. They are commonly used in marketplaces, freelance platforms, real estate, and B2B transactions.