Checkable deposits are funds deposited in accounts that people can quickly access without any restrictions or limitations. The funds can be rapidly and easily transferred to other people by a variety of means, and such accounts are highly liquid in nature, acting very much like cash for the account holder. When banks calculate their reserve requirements, they are required to count their checkable deposits. Reserve requirements are intended to ensure that banks have enough cash on hand to meet the need from their customers.
One example of this type of deposit is a checking or savings account. People can access the funds in the account on demand by walking into a bank and making a withdrawal or using an automatic teller machine with a bank card. Checks and drafts can be written against such accounts, and people can also transfer funds electronically. Negotiable order withdrawal (NOW) accounts that bear interest are another example, as are money market accounts.
In all cases, people have a variety of means for accessing the funds in the account and can access the account at any time. Drafts and checks written against it are honored as long as there are sufficient funds to cover them or the customer has an overdraft agreement. People can deposit funds as often as they want and can also receive deposits electronically from other sources. Online banking can allow people to schedule movements of funds to and from these accounts during the day or night.
This contrasts with time deposits that place limits on how and when people can withdraw money. Certificates of deposit are an example of this type, as people are only allowed to withdraw funds from such accounts if they pay a penalty. In addition, there are usually limits on the total number of transactions per month. These are not checkable deposits because there are limitations on the account and the contents cannot be easily transferred to another party with an instrument like a check or draft.
Banks keep meticulous records documenting the funds in their care, the types of accounts those funds are currently stored in, and how those funds are being used. This documentation is used while calculating reserve requirements to see if a bank needs more cash on hand or can send cash to another location. Banks tend to limit cash-on-hand because it provides no benefits like earning interest or being usable for investments while it sits in a bank vault.
