DEFINITION of 'Reservable Deposit'

A reservable deposit is any bank deposit that is subject to reserve requirements imposed by the Federal Reserve Bank in the United States. Reservable deposits include transaction accounts, savings accounts and nonpersonal time deposits. Transaction accounts are deposit accounts that are readily available to the account owner, such as a checking account or share draft account, and may be accessed through cash withdrawals, the use of debit cards or checks or with electronic transfers.

Transaction accounts are used by both individuals and institutions. Nonpersonal time deposits are accounts owned by institutions, not an individual(s), that pay an interest rate and have a specified maturity date before which the depositor must pay a fee to withdraw funds. An example of a nonpersonal time deposit account is a certificate of deposit owned by a corporation.

BREAKING DOWN 'Reservable Deposit'

The Federal Reserve Bank's Board of Governors determines the reserve requirement rate, which is imposed on the total value of a depository institution's reservable deposits. If account holders increase the amount of money held in their reservable deposit accounts, the depository institution's reserve requirement will increase. The amount of this reserve requirement must be held either as cash in an institution's own vault or as a deposit at the nearest Federal Reserve bank. This practice is known as fractional reserve banking, because only a fraction of customer deposits are kept on hand for immediate withdrawal. The remaining value of customer deposits is loaned out so the bank can earn a return on it.

Sweep Accounts

Many depository institutions make use of sweep accounts. Sweep accounts are nonreservable deposit accounts, such as money market funds, that generally earn a higher interest rate than reservable deposit accounts. Depository institutions may analyze reservable deposit accounts to determine if there are excess funds that can be moved out of the account, and will automatically transfer these funds, sometimes as often as daily, to a sweep account like a money market fund, which is not subject to federal reserve requirements. By utilizing sweep accounts, the depository institution lowers the amount of money it must hold in cash to meet reserve requirements, thereby increasing the amount of money it can lend out or invest to earn an interest rate or higher rate of return.

RELATED TERMS
  1. Bank Deposits

    Bank deposits are money placed into a deposit accounts at a banking ...
  2. Multiplier Effect

    The multiplier effect is the increase in economic activity resulting ...
  3. Deposit

    1. A transaction involving a transfer of funds to another party ...
  4. Cash Reserves

    Cash reserves refer to the money a company or individual keeps ...
  5. Bank Reserve

    A bank reserve is the currency deposit that is not lent out to ...
  6. Availability Schedule

    The availability schedule is the number of days it takes a third-party ...
Related Articles
  1. Financial Advisor

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  2. IPF - Banking

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  3. Investing

    Best 2016 IRA Promotions (ETFC, BAC)

    Here are some of the best IRA promotions of 2016, with significant bonuses for large deposits.
  4. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  5. IPF - Banking

    Get the Best Savings Interest Rates For You

    How do you choose between market deposit accounts, CDs and traditional savings accounts?
  6. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  7. IPF - Banking

    The History Of The FDIC

    Find out why this corporation was developed and how it protects depositors from bank failure.
  8. Insights

    Starbucks Has More Customer Deposits than Many Banks (SBUX)

    Recent financial analysis conducted by Standard & Poors shows that Starbuck's holds more customer deposits than several American banks.
  9. Insights

    How the Federal Reserve Manages Money Supply

    The Federal Reserve was created to help reduce the injuries inflicted during the slumps and was given some powerful tools to affect the supply of money.
RELATED FAQS
  1. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... Read Answer >>
  2. What determines the interest rate on my money market account?

    Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >>
  3. What is the difference between the deposit multiplier and the money multiplier?

    Explore the deposit multiplier and the money multiplier, two fundamental concepts of Keynesian economics, and learn how they ... Read Answer >>
  4. What economic factors affect savings account rates?

    Find out how supply, demand and central bank policy all affect savings account rates offered by banks for extra deposits ... Read Answer >>
Trading Center