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August 17, 2019 

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U.S. TREASURY BILL: One kind of government security issued by the U. S. Treasury to obtain the funds used to finance the federal budget deficit. A Treasury bill (or T-bill) has a maturity length of one year or less, with 90 days a common maturity. T-bills, together with short-term commercial paper issued by businesses, are traded in money markets. The interest rate on T-bills is one of the key indicators of short-run economic activity.

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DEMAND DEPOSITS:

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 They pay no interest on balances and as the name indicates, the funds can be withdrawn "on demand," which is accomplished by writing a check.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 can be legally offered to businesses. Demand deposits are one type of checkable deposits. Others are NOW accounts, share drafts, and ATS accounts.
A few decades back, demand deposits were synonymous with checking accounts. Demand deposits WERE checkable deposits. The only form of checkable deposits available were demand deposits maintained by traditional commercial banks. In these simpler times, banks offered two basic types of accounts to their customers--checking accounts and savings accounts.
  • Checking accounts, or demand deposits, were used as money. Customers wrote checks on these accounts which they used in exchange for goods and services. These checking accounts paid no interest on outstanding balances. They provided customers with liquidity, a medium of exchange as good as, or even better than, cash.

  • Savings accounts, or time deposits, were used to store wealth. These accounts paid an interest on outstanding balances, but could not be used directly to make purchases. Customers had to withdraw currency or transfer wealth from savings accounts into checking accounts to make purchases.
However, the world of banking became increasing complicated in the 1970s and 1980s. Interest rates increased. Deregulation freed banks to pursue a life of higher profit. Financial markets became more competitive. Other depository institutions (credit unions, savings and loan associations, and mutual savings banks) invaded the territory once controlled exclusively by traditional banks. And demand deposits were no longer the only checkable deposits available.
  • NOW Accounts: Savings and loan associations and mutual savings banks issued what they termed NOW accounts--negotiable orders of withdrawal. A "negotiable order of withdrawal" is essentially another term for "check." While these were basically checking accounts, an interest was paid on the balance of funds.

  • Share Draft Accounts: Credit unions got into the act by offering share draft accounts. Because "draft" is also another term for "check" this too was another type of checking account, but which also paid an interest on the balance in the account.

  • ATS Accounts: To remain competitive with the interest-paying "checking accounts" offered by their depository competition, traditional commercial banks began offering automatic transfer services (ATS) accounts. This involved the automatic transfer of funds from a savings account to a checking account to process checks. This service allowed banks to pay interest on the balance of the savings account, even though the savings account effectively functioned as a checking account.
Even with all of these innovative ways of attracting deposits from customers, traditional demand deposits remained in operation. Demand deposits provided customers with liquidity, but paid no interest. For many household consumers, this was and remains a satisfactory service. However, for business customers, this was and is the ONLY service. Government regulations prevent businesses from having interest-paying checking accounts. They can have ONLY demand deposits--no NOW accounts, no share draft accounts, no ATS accounts.

Demand deposits, while once the only option available, continue to account for half of the checkable deposits issued by traditional commercial banks and other depository institutions and are one-fourth of the M1 money supply.

<= DEMAND DECREASE AND SUPPLY INCREASEDEMAND DETERMINANTS =>


Recommended Citation:

DEMAND DEPOSITS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: August 17, 2019].


Check Out These Related Terms...

     | checkable deposits | currency | Federal Reserve notes | near monies | plastic money |


Or For A Little Background...

     | money | money functions | medium of exchange | M1 | saving | liquidity | banks | financial markets | business |


And For Further Study...

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


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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