What is an Open Account?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 December 2019
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An open account is any type of financial account where some type of credit is extended to a customer. Accounts of this type include credit card accounts, lines of credit established with a bank, and even a revolving charge account at a local business. The typical open account is structured to apply some rate of interest to the current amount owed by the account holder. Some accounts that have an open structure have a credit limit, while others are open ended and subject to review by the creditor from time to time.

One of the most common examples of the open account is the credit card account. The business issuing the card grants the credit privileges based on terms and conditions that are found in the contract that governs the use of the account. Many credit cards are set at a pre-determined credit limit that is reviewed from time to time by the issuer, and may be adjusted if the account holder proves to be responsible in using the account. Some credit cards do not include a pre-determined credit limit, but are reviewed from time to time to ensure the holder is still considered creditworthy. Some cards charge an annual fee, and all types impose finance charges on any current balances present at the closing date for the current billing period.


A revolving charge account is another form of an open account. This term is sometimes applied to credit cards, but can also refer to charge accounts that are set up with local merchants. Essentially, this type of account makes it possible to purchase items now, and pay for them within a given period of time. This type of local open account is sometimes more casual than a credit card account, since it relies mainly on the degree of trust that exists between the business owner and the customer. As with any type of open account, charging privileges can be revoked at any time if the issuer has reason to believe the customer is unwilling or unable to pay.

Many businesses establish a line of credit with banks and other financial institutions. This type of open account allows the business to draw on the credit line for any number of purposes, such as meeting a payroll, launching a new product line, or simply obtaining funds to help the business through a period of seasonal downturn. The money borrowed via the line of credit is repaid based on the terms of the contract between the two parties, often in minimal increments within specified periods of time.

Just about any type of open account allows the account holder to make payments on the outstanding balance whenever he or she wishes. Many accounts of this type do impose a minimum payment that must be made each billing period in order to keep the account in good standing. As long as this minimum payment is made on time, the account holder can pay as much above that amount as he or she desires, or make multiple additional payments throughout the billing period.


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