Escrow is an arrangement where a trusted middle party holds funds until specific conditions are satisfied, then releases them to the right recipient. It lets a buyer and seller transact without either having to go first on trust: the payer's money is real and set aside, but the payee cannot touch it until, for example, goods ship or a milestone is signed off. This is a party-and-control concept layered on top of ordinary money movement; the funds still sit in a real bank account and still move via normal rails, but a rulebook governs when. Marketplaces and platforms often use escrow-like holds so they can pay out sellers only after a buyer is satisfied.
In a flow
A payer funds the escrow (a real money leg into a holding account), the holder confirms the release condition is met, then the holder pays out to the payee (a second money leg). The hold itself is the control step in between. In marketplace setups the platform may hold funds in an FBO-style account and release payouts on its own schedule rather than instantly.
Common misconceptions
Myth: Escrow means the money sits frozen and untouchable somewhere special.
Reality: The funds are usually in an ordinary bank account controlled by the escrow holder. What makes it escrow is the rules on when and to whom it can be released, not a special vault.
Myth: Any platform holding your money is true legal escrow.
Reality: Many platforms use escrow-like holds that are not formal escrow. Whether something is legally escrow depends on the structure and local rules, which affects who is protected if the holder fails.
Related terms
See it in a guide
Sources
Educational, plain-English explainers. Not legal, compliance, tax, or financial advice. These cover fundamentals, not current fees, limits, or rates (which change). Rails and parties vary by program and country, so verify specifics against primary sources. Last reviewed June 2026.