An escrow account is a separate bank account you maintain with your mortgage lender. An escrow account can help you set aside money each month for bills that relate to your property and usually come due as a lump sum — such as property taxes and homeowners insurance — as well as other bills such as private mortgage insurance.

When you have an escrow account, you make a single payment, usually monthly, which includes both your loan payment and your escrow payment, the Federal Trade Commission explains. Typically, your escrow payment covers part of your property taxes, mortgage insurance and homeowners insurance.

In some states, you may be able to earn interest on the balance in your escrow account, according to the Department of Housing and Urban Development (HUD).

When your taxes and homeowners insurance fall due, your mortgage lender generally uses the funds in the account to pay those bills on your behalf.