Checking accounts in commercial banks
Checking accounts in commercial banks called demand deposits by economists are a part of the money supply. Checks written by against these deposits can be used to buy things and the deposits are a store of value.It is true you may be asked to provide identification when cashing a check, but essentially you can use a check in the same way as paper money. What a cheque does is authorize the person to whom it is made to take part of the deposit in the bank. In January 2008 demand deposits totaled $265.3 billion.
The value of coins and paper currency together with the demand deposits total $372.6 billion and economists call this combination the money supply. In January 2008 the money supply was made up of 29 percent coin and paper currency and 71 percent demand deposits. These are the most liquid financial assets, which means that they can be used most easily and directly to buy things. Also, with one exception, they do not earn interest. You can take out of a checking account only the amount you have put in.
Savings Accounts
Savings accounts earn interest but in most cases you cannot write a check against them. Because they are less liquid than checking accounts, they cannot be used as money. (NOW accounts-negotiable orders of withdrawal-constitute the only exception to this; they are a form of savings account against which checks can be written.) At the same time, it is an easy matter for us to transfer a deposit from your savings account to our checking account; sometimes it only requires a phone call. In addition, there are time deposits in commercial banks that are a form of savings account generally held by businesses.
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