Demand deposit


Demand deposit

Demand deposits or bank money are funds held in demand deposit accounts in commercial banks.[1] These account balances are usually considered money and form the greater part of the money supply of a country[2].

Contents

History

Traditionally, demand deposits only referred to funds held in checking accounts (or cheque offering accounts), however, financial innovation has allowed easier access to funds from other types of accounts (e.g. savings accounts, money market account), and these funds are sometimes also referred to as demand deposits.

In the United States, demand deposits arose following the 1865 tax of 10% on the issuance of state bank notes; see history of banking in the USA.

Money Supply

Demand deposits are usually considered part of the money supply, as they can be used, via checks and drafts, as a means of payment for goods and services and to settle debts. The money supply of a country is usually held to consist of currency plus demand deposits. In most countries, demand deposits account for a majority of the money supply[2].

During times of financial crisis, bank customers will withdraw their funds in cash, leading to a drop in demand deposits and a shrinking of the money supply. Economists have speculated that this effect contributed to the severity of the Great Depression.[3]

This did not happen, however, in the financial crisis that began in 2008. In fact, demand deposits in the U.S. increased dramatically, from around $310bn in August 2008 to a peak of around $460bn in December 2008.[4]

See also

  • Liquidity

References

  1. ^ "Bank Money: Merriam-Webster Dictionary". www.merriam-webster.com. http://www.merriam-webster.com/dictionary/bank+money. Retrieved 2009-08-19. 
  2. ^ a b Krugman, Paul R., and Robin Wells. Economics. New York: Worth, 2006. Print.
  3. ^ Friedman, Milton (November 1, 1971). Monetary History of the United States, 1867-1960. Princeton University Press. ISBN 0691003548. 
  4. ^ "Federal Reserve Bank statistics". www.federalreserve.gov. http://www.federalreserve.gov/releases/h6/hist/h6hist7.htm. Retrieved 2010-03-18. 

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • demand deposit — see deposit 2a Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • demand deposit — ☆ demand deposit n. Banking a deposit that may be withdrawn on demand, without advance notice …   English World dictionary

  • demand deposit — A deposit account that permits the depositor to withdraw funds on demand. Usually, but not always, a checking account. Sometimes called demand deposit account ( DDA). American Banker Glossary * * * demand deposit demand deposit ➔ deposit1 * * *… …   Financial and business terms

  • demand deposit — demand′ depos it n. bus a bank deposit subject to withdrawal at the demand of the depositor without prior notice • Etymology: 1925–30 …   From formal English to slang

  • Demand Deposit — An account from which deposited funds can be withdrawn at any time without any notice to the depository institution. This account allows you to demand your money at any time, unlike a term deposit, which cannot be accessed for a predetermined… …   Investment dictionary

  • demand deposit — A bank deposit payable on demand or within a specified number of days after demand. 10 Am J2d Banks § 356 …   Ballentine's law dictionary

  • demand deposit — Banking. a deposit subject to withdrawal at the demand of the depositor without prior notice. [1925 30] * * * …   Universalium

  • demand deposit — noun a bank deposit from which withdrawals can be made without notice • Hypernyms: ↑deposit, ↑bank deposit …   Useful english dictionary

  • demand deposit — noun Date: 1923 a bank deposit that can be withdrawn without advance notice …   New Collegiate Dictionary

  • demand deposit — /dɪ mɑ:nd dɪˌpɒzɪt/ noun US money in a deposit account which can be taken out when you want it by writing a cheque …   Marketing dictionary in english