December 16, 2019 

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AGGLOMERATION: The clustering of several similar or related activities at the same location. Many industries have firms that tend to agglomerate, that is, locate very close to one another, leading to geographic concentration. For example, the motion picture industry is concentrated in California, the fashion industry is concentrated in New York, and the petroleum industry is concentrated in Texas. Agglomeration can be caused by accessibility to a concentrated natural resource (such as petroleum or sunny weather), but if often feeds upon itself through agglomeration economies. Firms in the same industry often have lower production cost when the located near their competitors.

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Checking account deposits maintained by traditional commercial banks and depository thrift institutions (savings and loan associations, credit unions, and mutual savings banks) that are generally accepted in payment in exchange for goods and services. These accounts, also termed transactions deposits, make it possible for customers transfer funds easily and quickly to another, which makes them ideally suited for use as money. Checkable deposits are approximately one-half of the official M1 monetary aggregate tracked by the Federal Reserve System. The other half is currency (paper bills and metal coins).
June 2004 (Billions)


Checkable Deposits650.7
Travelers Checks

Total M1$1,335.2

Checkable deposits are checking account balances maintained by, and available through, depository banking institutions, including commercial banks, savings and loan associations, credit unions, and mutual savings banks.

Checkable deposits are comprised of negotiable bank deposits that along with currency function as the medium of exchange for an economy. The official money supply for the U.S. economy contains almost equal portions of currency and checkable deposits. Because checkable deposits are used to conduct transactions these are also referred to as transactions deposits in many official banking circles.

The exhibit to the right illustrates the role checkable deposits play in the M1 money supply for the U.S. economy.

Payable on Demand

Checkable deposits are bank accounts that allow depositors to withdraw funds on demand. Moreover, the depositors can instruct the bank to withdraw the funds and make payment to a third party. Historically this "order" took the form of a piece of paper (that is check), but in more recent years, electronic orders have become more common (ATM transactions, debit cards, online transfers, etc.).

This mechanism makes checkable deposits an ideal mechanism to make payment for the purchase of goods and services. A buyer, such as a typical consumer like Duncan Thurly, gives Mega Mart Discount Super Center a check for $18.37 in exchange for a loaf of bread, a gallon of milk, a garden hose, and a bag of licorice. This check instructs Duncan's bank (OmniBank) to withdraw $18.37 from Duncan's account and give it to Mega Mart. In theory, this could entail that OmniBank give Mega Mart $18.37 in paper bills and metal coins. In practice, this usually involves the transfer of $18.37 from Duncan's account to Mega Mart's account.

Traditional commercial banks were the first institutions to offer checkable deposits. In fact, traditional commercial banks were the only institutions to offer such deposits for several decades. In recent years, other depository institutions (savings and loan associations, credit unions, and mutual savings banks) began issuing their own types of checkable deposits. They used different names, but the accounts all functioned the same.

A Variety

The original checkable deposits offered by traditional commercial banks are termed demand deposits. Three newer types of checkable deposits issued by both traditional commercial banks and thrift institutions are termed negotiable orders of withdrawal, automatic transfer services, and share drafts.
  • Demand Deposits: These are standard checking accounts maintained by commercial banks. They pay no interest on balances and as the name indicates, the funds can be withdrawn "on demand," which is accomplished by writing a check. Demand deposits on the only type of checkable deposits that business can legally have.

  • Negotiable Orders of Withdrawal (NOW): These are "checking" accounts that were originally offered by mutual savings banks and savings and loan associations. The title "negotiable order of withdrawal" basically describes the function of a traditional demand deposit. A depositor "orders" the bank to "withdraw" an amount "negotiated" between the depositor and the third party receiving the payment. The title was designed to circumvent existing laws that prohibited mutual savings banks and savings and loan associations from offering demand deposits.

  • Automatic Transfer Services: These are accounts that provide an automatic transfer of funds between an interest-paying savings account and a checking account. Such accounts work like this. A customer's checking account maintains a zero balance. When a check is written on the account, the necessary funds are transferred from the customer's savings account. This allows the bank to pay the depositor an interest on the savings (which is really checking) account, something that was not legal when ATS accounts were introduced.

  • Share Drafts: These are "checking" accounts that were originally offered by credit unions. Like NOW accounts, share drafts were so named to circumvent regulations preventing credit unions from offering demand deposits. The "share" part came from the fact that credit unions were mutually owned by the customers, each owned a "share" in the credit union. The "draft" part resulted because regular checks were often referred to as "bank drafts."
Whichever name is used and whichever institution maintains the account, they all function the same. They are used to facilitate transactions and are thus part of the economy's money supply.


Recommended Citation:

CHECKABLE DEPOSITS, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2019. [Accessed: December 16, 2019].

Check Out These Related Terms...

     | M1 | currency | monetary aggregates | M2 | M3 | L | currency | near monies | plastic money | share drafts | negotiable orders of withdrawal | automatic transfer services |

Or For A Little Background...

     | money | money functions | money characteristics | fiat money | commodity money | medium of exchange | liquidity |

And For Further Study...

     | money creation | fractional-reserve banking | banking | Federal Reserve System | monetary economics | monetary base | monetary policy | debit card | monetary economics | seigniorage |

Related Websites (Will Open in New Window)...

     | Federal Reserve System | Federal Reserve Education | U.S. Department of the Treasury | The Currency Gallery |

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