An escrow account is an account for the deposit of money being held by a third party (such as a credit union, bank, title company, attorney, etc.) in the trust of another.

This account can be interest bearing or non-interest bearing. Some states have an interest bearing account, in Florida if your money is placed in a interest bearing account in a real estate transaction, the real estate broker must have written authorization by both parties explaining who is entitled to the interest earned. In some states such as Colorado, this written authorization is not mandatory and some title companies make the profit while the buyer/seller is unaware.

Some mortgage companies require customers to maintain an escrow account that pays the property taxes and hazard insurance. Others offer it as an option for customers. Certain types of loans, most notably Federal Housing Administration (FHA) loans, require the lender to maintain an escrow account for the life of the loan. The monthly escrow payment is calculated by taking the total of anticipated tax and insurance disbursements for the coming year, and dividing that number by 12. If the mortgage company requires a minimum balance in the escrow account (usually no more than double the monthly escrow payment), they may add on a shortage adjustment so that the balance never falls below the minimum balance requirement.