First page Back Continue Last page Overview Graphics
Less Liquid Money: M2
The money deposited into a checking account is considered M1 since it can be easily spent by writing checks. (by the way, checking accounts are also called demand deposits, since the bank must pay the money upon demand of the depositor)
The money that deposited in a savings account or certificate of deposit is considered a time deposit. It can be spent, but not as easily as a checking account. First you must either transfer the money into the checking account and then write a check, or you have to withdraw the money from the bank and then spend the cash. Either way, it has an added step. It’s not quite as liquid as M1.
Economists also measure how much slightly-less-liquid money exists. It is called M2. M2 consists of all of M1 + time deposits.