What Are Checkable Deposits?

Woman withdrawing money at an ATM outdoors
•••

 urbazon / Getty Images

DEFINITION
Checkable deposits are deposits at banks and other financial institutions against which checks or drafts can be written.

Checkable deposits are deposits at banks and other financial institutions against which checks or drafts can be written. Let’s take a closer look at what checkable deposits are, how they work, and their pros and cons so you can determine if they make sense for your situation.

Definition and Example of Checkable Deposits

Checkable deposits are highly liquid, meaning you can easily withdraw money from them at any time. When banks determine their reserves, they consider their checkable deposits. This way they can ensure they have enough cash to meet their customers’ needs.

Let’s say you have a checkable deposit at a bank. One day, you need to write a $15,000 check to pay for a car you want to purchase. Assuming you have enough money in your account, the bank must give you $15,000 when you request it.

How Checkable Deposits Work

Because checkable deposits are payable on demand, you’re guaranteed to receive the exact amount of money you request right away. You also have the right to transfer the funds to a third party directly and receive all account information, including balance details, interest charges, and fees.

Not all checkable deposits are created equal, so it’s important to shop around, explore your options, and compare their limitations.

Checkable Deposits vs. Time Deposits 

With a checkable deposit, such as a checking account or savings account, you can withdraw money whenever you’d like. Time deposits, however, differ in that there are limits on how and when you can take money out of your account. 

A certificate of deposit, or CD, is an example of a time deposit. If you open a CD, you won’t be able to transfer money easily. In addition, you’ll have to wait until your term is over before you can access the funds without a penalty.

Types of Checkable Deposits

There are various types of checkable deposits, including:

Checking Accounts

When you think of a bank account, a checking account is typically the first kind that comes to mind. You can open one at a bank, credit union, or online institution and use it to make purchases with checks or debit cards. A checking account is a good alternative to cash. It’s a transactional account that you can access to pay for everyday purchases like groceries and bills. 

Savings Accounts

As its name implies, a savings account is a place to store your money. It can help you separate what you spend from what you save. While you may open a savings account along with a checking account, you won’t use it on a regular basis for day-to-day expenses. Instead, you’ll deposit money into it, which you can eventually withdraw to meet a certain financial goal, like a down payment for a mortgage or a car.

The Federal Reserve keeps track of the monthly total of checkable deposits in the U.S. with data known collectively as “Other Liquid Deposits.”

Money Market Accounts

Compared with traditional savings accounts, money market accounts have higher balance requirements. The most noteworthy benefit of them, however, is that they tend to offer greater returns. They earn dividends based on current market rates.

Also, money market accounts limit how many checks you can write in a month. If you exceed that limit, you won’t be able to complete any new transactions until the next month. The good news is you can make as many withdrawals as you want and deposit money into your account without penalty.

You can use a money market account to hold your emergency fund or to invest until you’ve earned enough to make a big-ticket purchase. 

Pros and Cons of Checkable Deposits

Before you open a checkable deposit, keep these advantages and drawbacks in mind. 

Pros
  • Various options

  • Highly liquid

Cons
  • Not for long-term goals

  • May have fees and limitations

Pros Explained

  • Various options: There are several types of checkable deposits available. You can choose from checking accounts, savings accounts, money market accounts, and others.
  • Highly liquid: Because checkable deposits are highly liquid, they can give you fast access to cash. This can be a huge plus in the event of an emergency expense. 

Cons Explained

  • Not for long-term goals: While checkable deposits can help you save money, they’re not ideal for long-term financial goals like retirement or college. You’d be better off opening a 401(k), individual retirement account (IRA), or 529 plan.
  • May have fees and limitations: Many checkable deposits come with fees and limitations. That’s why it’s important to read the fine print before you commit to one. 

Key Takeaways

  • Checkable deposits are bank accounts against which checks can be drawn.
  • A few examples of checkable deposits include checking, savings, and money market accounts.
  • While they’re highly liquid, checkable deposits are not intended for long-term goals, and usually have fees and limitations.

Article Sources

  1. Texas Higher Education Coordinating Board. “Measuring Money: Currency, M1, and M2.”

  2. Social Security Administration. “Program Operations Manual System (POMS).”

  3. U.S. Federal Reserve System. “L.204 Checkable Deposits and Currency.”

  4. Navy Federal Credit Union. “Money Market Savings Accounts.” 

  5. FINRA. “Money Market Accounts and Money Market Mutual Funds.”