Chapter 10(5) Managing and Prici

Transaction (Payment or Demand) Deposits

An account used primarily to make payments for purchases
of goods and services

Define:

• Making payment on behalf of customers
• One of the oldest services
• Provider is required to honor any withdrawals immediately
• Hottest item in the transaction deposit field today appears to be the mobile check deposit
  • Designed principally for customers on the move, carrying camera-equipped smart phones

Types:

• Noninterest-Bearing Demand Deposits
  • Interest was prohibited by Glass-Steagall Act
  • One of the most volatile and unpredictable sources of funds
  • Most deposits are held by business firms
• Interest-Bearing Demand Deposits
  • Negotiable Orders of Withdrawal (NOW) 可转让支付命令账户
  • Money Market Deposit Account (MMDA) 货币市场存款账户
  • SuperNOW超级可转让支付命令账户
• Mobile Apps: the hottest item in payment
  • PayPal, Alipay, WeChat Pay

Nontransaction (Savings or Thrift) Deposits

An account whose primary purpose is to encourage the bank customer to save rather than make payments

Characters:

• Longer-Term
• Higher Interest Rates Than Transaction Deposits
• Generally Less Costly to Process and Manage

Types:

• Passbook Savings Account
• Statement Savings Deposit
• Time Deposit (CD)
• Retirement Savings Deposits

The Composition of Deposits

• Bankers would generally prefer a high proportion of transaction deposits (including regular checking or demand accounts) and low-yielding time and savings deposits
• These accounts are among the least expensive of all sources of funds and often include a substantial percentage of core deposits

The Ownership of Deposits

• the private sector: individuals, partnerships, corporations
• State and local governments
• Central government
• Foreign governments, businesses and individuals
• Other banks
  • deposits due to banks and other depository institutions 同业 存款
  • deposits due from banks and other depository institutions 存放同业

P299 note

The Cost of Different Deposit Accounts

• Explicit interest rate
• Implicit interest rate: true cost of supplying fund-raising services-the service fees charged

Pricing Deposit-Related Services

Individual depository institution has little control over its prices in a financial marketplace that approaches perfect competition

• It is the marketplace that ultimately sets prices.
• Financial institutions are price takers, not price makers.