Why Are Demand Deposits Considered As Money?

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Why Are Demand Deposits Considered As Money

As per the dictionary, a deposit is something given or loaned with an agreement to return it later. Cash may be deposited in savings accounts, fixed deposits, recurring deposits, and so on. But there is one more type of deposit which is neither a loan nor a fixed deposit – a demand deposit. This article explains what are demand deposits and why are they considered money. Let’s get started.

Why are Demand Deposits Considered As Money?‍

Demand deposits are a form of money because they cannot be used to buy goods and services. They are held by individuals and businesses that can be used as a means of payment for goods and services when required. They can be used as a medium of exchange and a store of value.

Types Of Demand Deposits

Demand Deposits:

Demand deposits are a type of deposit that are used by individuals and businesses that can be withdrawn at any time. The main purpose of demand deposits is to facilitate business transactions by providing a source of liquidity, which is the ability to pay bills and make payments on time.

Time Deposits:

Time deposits are a form of deposit where the depositor has the option to withdraw their money at any time. The money that is deposited in a time deposit account does not earn any interest. In other words, time deposits are a type of deposit that can be withdrawn at any time without any set notice period. The main purpose of time deposits is to provide liquidity and help businesses get funds when they need them, without having to pay extra interest for it.

Savings Accounts:

Savings accounts are a type of deposit where the depositor has the option to withdraw their money at any time without any set notice period, with no restrictions as far as withdrawals go (for example, in some countries there may be restrictions regarding how much you can withdraw from your savings account over and above what you have deposited). The main purpose of savings accounts is to provide liquidity for people who do not need their money right away but would like it just in case they need it later on in life or if they have some sum left over after paying regular bills and expenses etc. These could also be referred to as emergency savings accounts or emergency funds accounts where people save up money to cover unexpected costs.

Time Shares:

Timeshares are a type of deposit where the depositor has the option to withdraw their money at any time without any set notice period and can choose when they would like to receive their money back. The main purpose of timeshares is to provide liquidity for people who want instant access to funds, without having to wait for them to mature or be available in the market. For example, someone who needs immediate payment on a business loan can get it from a timeshare account. The interest earned on timeshares is not fixed but is tied to the performance of the company which lends the money. 

Certificate of Deposit:

A certificate of deposit is a type of deposit where you agree with the bank/financial institution that you will make regular payments over a certain period of time and upon completion of this period, your original deposit amount plus all interest will be returned to you. For example, you decide that you would like to invest your money in a certificate of deposit and promise the bank to pay them regular amounts over the term of the CD. The bank/financial institution agrees to keep your money in their safekeeping until the time period is over or they are paid out. This type of investment instrument is usually used by people who have a need for liquidity and do not wish to wait for their funds to mature or be available in the market.

Advantages Of Demand Deposits

  • Demand deposits are a way of payment.
  • They can be used as a medium of exchange.
  • A demand deposit account is also a store of value and you can use them to safeguard your future.
  • Demand deposits are also considered to be a form of money because they can be used as a medium of exchange, store value, and provide liquidity in the economy.
  • Demand deposits are also considered to be money because they are generally accepted by banks, merchants, and individuals in society as a means of payment.
  • Demand deposits can be withdrawn at any time without any set notice period or any penalties for early withdrawal because they are considered to be a source of liquidity in the economy and funds that can be withdrawn at any time without any notice period or penalties for early withdrawal.
  • In short, demand deposits are generally accepted by banks, merchants, and individuals in this society as means of payment and they can be used as a medium of exchange, store of value, provide liquidity and safeguard your future through demand deposit accounts with the banks that you open with them or with other financial institutions like mutual funds or insurance companies, etc.

Disadvantages Of Demand Deposits

  1. The main disadvantage of demand deposits is that they are easy to be lost or stolen.
  2. Demand deposits are a form of money, which means that if the demand deposit account is lost or stolen, the depositor may not be able to get their money back.
  3. Demand deposits are a form of money and as such, they cannot be used to buy goods and services as cash can do.
  4. In order for demand deposits to be considered money, they need to meet certain conditions such as liquidity and being able to be converted into cash at any time without any notice period.
  5. If a person loses his/her demand deposit account, he/she may not have access to his/her funds because there is no central bank where all the demand deposit accounts are kept in one place.
  6. There is no guarantee when people will get their funds back after they have lost them so they will have less trust in banks than cash users do because banks cannot always ensure that their funds will not be lost or stolen even though there are many security measures taken by banks in order for them to be safe from theft and loss of funds from their clients’ accounts.

Summary

In this article, we have discussed what are demand deposits. Why are demand deposits considered money? We have also discussed the types of demand deposits and the advantages and disadvantages of demand deposits. Now you know how demand deposits work, why they are considered money, and what are the advantages and disadvantages of demand deposits. These are essentially a type of deposit where you can withdraw your money at any time without any notice period.