1. Chapter 4: Deposits in Banks
4.1: Deposit Accounts

2. Transaction Accounts
Account that allows any number of transactions at any time
DEMAND DEPOSITS
Payable on demand whenever you want it
Examples
Checking (Simple & Interest-Bearing)
Traveler’s Checks
Automatic Transfer Service (auto bill pay)

3. Checking Accounts Basic Interest-Bearing
Simple services at minimal or no cost
Possible extra costs:
ATM
Debit card
Return of cancelled checks
Many banks offer a form of this type; use many different names
Interest-Bearing
Pays interest on balance if it’s maintained
Higher interest if higher minimum balance usually
Balance may be average for month or preset minimum
Service charges may apply if you go below minimum

4. Checkable Deposits Deposits that cover demand deposit transactions
Funds deposited in checking accounts
M1—Highly Liquid
Banks must hold reserve funds on these since money could be moved immediately
Other Demand Deposit Transactions
Traveler’s Checks
ATS (Automatic Transfer Service=automatic bill pay)

5. What is a transaction account?
Assignment
What is a transaction account?
Why are transaction accounts considered demand deposits?
Why can the funds in transaction accounts affect the money supply?

6. Time Deposits Deposits held for a certain time
Until maturity
Less liquid than checkable accounts
Not subject to the Fed’s reserve requirement
Examples:
Savings Accounts
Money Market Deposit Accounts
Certificates of Deposit
Money Market Mutual Fund Accounts coming up soon

7. Savings Accounts One of the safest places to put money
FDIC
Insured per depositor up to $250,000
Banks may reserve right to require up to 7 day notice to withdraw from account
Statement savings
Used to be passbook savings
Monthly or quarterly statement sent or ed
Account activity details
Interest earned
Fees charged
Low interest earned but high safety & liquidity

8. MMDAs Earns higher rate of interest than savings
Usually need larger initial deposit to open
Minimum balance requirement to avoid fees
FDIC insured
Money held by bank
Bank invests your money in mutual funds
Government & corporate securities

9. MMMFAs
September 15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy.
September 16, 2008, Reserve Primary Fund, the oldest money fund, broke the buck when its shares fell to 97 cents after writing off debt issued by Lehman Brothers.[10]
The resulting investor anxiety almost caused a run on money funds, as investors redeemed their holdings and funds were forced to liquidate assets or impose limits on redemptions: through Wednesday, September 17, 2008, prime institutional funds saw substantial redemptions.[11][12] Retail funds saw net inflows of $4 billion, for a net capital outflow from all funds of $169 billion to $3.4 trillion (5%).[11]
September 19, 2008, the U.S. Department of the Treasury announced an optional program to "insure the holdings of any publicly offered eligible money market mutual fund—both retail and institutional—that pays a fee to participate in the program". The insurance will guarantee that if a covered fund breaks the buck, it will be restored to $1 NAV.[12][13] This program is similar to the FDIC, in that it insures deposit-like holdings and seeks to prevent runs on the bank.[9][14] The guarantee is backed by assets of the Treasury Department's Exchange Stabilization Fund, up to a maximum of $50 billion.
This program only covers assets invested in funds before September 19, 2008; those who sold equities, for example, during the recent market crash and parked their assets in money funds, are at risk. The program stabilized the system and stanched the outflows, but drew criticism from banking organizations, who expected funds to drain out of bank deposits and into newly insured money funds, as these later would combine higher yields with insurance.[9][14]

10. CDs
Certificate offered by a bank, guaranteeing payment of a specified interest rate until designated date (maturity date)
7 days to 10 years (but usually < 18 months)
Larger amount & longer terms = greater interest rate
Some have variable rates
Usually interest is higher than money market or savings rates
Penalty for early withdrawal
Safe—FDIC insured
Not very liquid
Consider maturity date when investing:
If interest rates go up until maturity, CD won’t earn as much as other time deposits
If interest rates go down, CD earns more than other deposits

11. Credit Unions
Transaction accounts & time deposits are shares in the credit union
Shareholders are owners
Receive dividends
Share-draft account = checking account
Share account = savings account
Share certificate = CD

12. Assignment List 3 types of time deposits.
Which of them are exempt from reserve requirements?
Imagine you have $1,000 to invest. Would you choose to put your money in a regular savings account at 3% interest, a money market deposit account at 4.5% interest, or a 12 month CD at 5% interest? WHY did you choose that one; what does it do for you?