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EXCESS RESERVES: The amount of bank reserves over and above those that the Federal Reserve System requires a bank to keep. Excess reserves are what banks use to make loans. If a bank has more excess reserves, then it can make more loans. This is a key part of the Fed's ability to control the money supply. Using open market operations, the Fed can add to, or subtract from, the excess reserves held by banks. If the Fed, for example, adds to excess reserves, then banks can make more loans. Banks make these loans by adding to their customers' checking account balances. This is of some importance, because checking account balances are an major part of the economy's money supply. In essence, controlling these excess reserves is the Fed's number one method of "printing" money without actually printing money.
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                           SAVINGS DEPOSITS: Interest-paying bank accounts maintained by traditional commercial banks, credit unions, savings and loan associations, and mutual savings banks that are used by consumers to store wealth. Savings deposits are one of two types of time deposits. The other is certificates of deposit. Savings deposits, along with certificates of deposit and other near monies, are added to M1 to derive M2. Savings deposits are interest-paying bank accounts used by consumers as a (usually) temporary way to store wealth, but while maintaining a significate amount of liquidity. Four basic accounts are includes under the savings deposits designation: (1) standard savings accounts, (2) passbook savings accounts, (3) share accounts at credit unions, and (4) money market deposit accounts.Banking regulations stipulate that a depositor must give a minimum of seven days written notice before withdrawing funds from savings deposits, but this requirement is seldom enforced. This requirement is why savings deposits are included in the broader category of time deposits. While savings deposits have a legal time requirement of at least seven days, like certificates of deposit, they have no explicit maturity date. In other words, the accounts can remain inactivity in perpetuity. However, savings deposits do have limits on the number of withdrawals per month, often with a minimum amount per withdrawal. Savings Deposits and M2M2
June 2004 (Billions) |
| | Component | Amount |
|---|
| | M1 | $1,335.2 | | Near Monies | 4,957.5 | | 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 |
|---|
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The table to the right presents recent values for M2 and its two key components, M1 and near monies. Contained within the near monies category are savings deposits (including share deposits, passbook accounts, and money market deposits). These deposits, labeled "Savings Deposits and Money Market Deposits" in the table, are the largest category of near monies found in M2, totalling $3.4 trillion dollars.Savings and Savings and Savings and SavingsSavings deposits come in four basic varieties: (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, (3) share accounts at credit unions, and (4) money market deposit accounts offered by all types of banks and thrift institutions. - 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.
- Money Market Deposit Accounts: These are accounts that also pay higher interest rates than savings accounts, but have minimum balance requirements and have limited check writing capabilities. These accounts were developed by banks in response to money market mutual funds offered by mutual fund companies.
A Word about CDsCertificates of deposit (CDs) are accounts with an explicit maturity date after the date deposit and which typically pay a higher interest rate than that found with standard savings accounts. Maturity dates can range from one week to several years. Longer maturity dates invariably correspond with higher interest rates. If the deposits are withdrawn prior to the maturity date, then an interest penalty is imposed, that is, the interest rate paid on the deposit is reduced.Certificates of deposit are so name because in the days before computerized record-keeping, depositors received an actual certificate, a document, stipulating the terms of the deposit--maturity date and interest rate. Liquidity PlusSavings deposits, and to a lesser degree certificates of deposit, fill an important niche in the world of banking services. First, they provide customers with a significant degree of liquidity. Savings deposits are NOT money and are NOT widely used as a medium of exchange. But they can be easily and quickly converted to currency or checkable deposits. Second, savings deposits store wealth for customers and provide banks with a pool of funds that can be used for loans. The minimum time requirements give banks some degree of assurance that the funds will be available for lending.
Recommended Citation:SAVINGS DEPOSITS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: July 26, 2024].
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