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September 21, 2018 

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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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MONEY MARKET DEPOSITS:

Interest-paying bank accounts maintained by traditional commercial banks, credit unions, savings and loan associations, and mutual savings banks that pay higher interest rates than standard savings accounts, but with minimum balance requirements and limited check writing capabilities. Money market deposit accounts were developed by banks in response to money market mutual funds offered by mutual fund companies. These deposits are typically considered a type of savings deposits, along with passbook accounts and share accounts. Money market deposits, along with these other savings deposits and assorted near monies, are added to M1 to derive M2.
Money market deposits are interest-paying bank accounts used by consumers as means of storing wealth, but without a substantial sacrifice of liquidity. Money market deposits (also termed money market share accounts at credit unions) share four common features.
  • One, they pay higher interest rates than standard savings accounts, share accounts, or passbook accounts. The interest rates generally fluctuate with changing market conditions.

  • Two, they have minimum deposit requirements. Customers generally have to keep minimum balances (say $500 or $1,000) to receive interest payments.

  • Three, they have limits on withdrawals and check-writing capabilities. Banking regulations limit total withdrawals to six per month with three of those using checks.

  • Fourth, like all bank deposits, they are insured up to $100,000. This is not the case for a primary alternative, money market mutual funds.

Money Market Deposits and M2

M2
June 2004 (Billions)

ComponentAmount

M1$1,335.2
Near Monies4,957.5
Savings Deposits
and Money Market Deposits
3,408.3
Small Denomination
Time Deposits
792.2
Money Market
Mutual Funds
757.0

Total M2$6,292.7

The table to the right presents recent values for M2 and its two key components, M1 and near monies. Money market deposits are conveniently included in the category labeled "Savings Deposits and Money Market Deposits."

Other Savings

Money market deposits are one of four types of savings. The other three are: (1) standard savings accounts or passbook accounts offered by traditional commercial banks, savings and loan associations, and mutual savings banks, (2) passbook accounts primarily offered by savings and loan associations and mutual savings banks, and (3) share accounts at credit unions.
  • Standard Savings Accounts: These are common savings accounts issued by commercial banks, savings and loan associations, and mutual savings banks. Should a customer enter an bank and request to open a "savings account," this is what they get. These accounts pay a minimal interest rate and have requirements on minimum time for accessing funds, number of withdrawals per month, which may or may not be enforced by the bank.

  • Passbook Savings Accounts: These are savings accounts, usually at savings and loan associations and mutual savings banks that are accessed by means of a passbook possessed by the customer. Deposits or withdrawals, along with interest accrued up to that time, are recorded in the passbook at the time of transaction. Such accounts were quite common in the days before computerized record-keeping, but have become less so in modern times.

  • Share Accounts: These are basic savings accounts offered by credit unions. Reflecting their status as nonprofit mutual associations, credit unions termed their savings accounts "share" accounts. Share accounts usually pay slightly higher interest rates than standard savings accounts, but otherwise they function much the same.

The Mutual Fund Alternative

Money market deposits at commercial banks and thrift institutions were developed in a competitive response to money market mutual funds.

A mutual fund is a financial instrument that pools the funds of a group of people to purchase a diversified portfolio of stocks, bonds, or other types of financial assets. A money market mutual fund is one that purchases an assortment of money market financial instruments, primarily U.S. Treasury bills, but also commercial paper and other relatively secure short-term investments.

Although money market mutual funds are relatively secure, that are not insured like money market deposits. However, the mutual funds generally pay an slightly higher interest return than the deposits.

Liquidity Plus

Money market deposits, like other savings deposits, fill an important niche in the world of banking services. First, they provide customers with a significant degree of liquidity. Event though checks can be written on money market deposits, they are NOT money and are NOT widely used as a medium of exchange. However, they are liquid and can be easily and quickly converted to currency or checkable deposits. Second, money market deposits provide an important means of storing wealth for customers and providing banks with a pool of funds that can be used for loans. The minimum balance requirements give banks some degree of assurance that a certain amount of funds will be available for loans.

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Recommended Citation:

MONEY MARKET DEPOSITS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: September 21, 2018].


Check Out These Related Terms...

     | money market mutual funds | time deposits | certificates of deposit | savings deposits | Eurodollars | repurchase agreements | demand deposits | checkable deposits | demand deposits | negotiable order of withdrawal accounts | automatic transfer service accounts | currency | Federal Reserve notes | near monies | plastic money |


Or For A Little Background...

     | money | money functions | medium of exchange | M2 | M1 | saving | liquidity | banks | financial markets |


And For Further Study...

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


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