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Which feature separates a time deposit from a demand deposit?
AIt is recorded as currency in the money supply
BIt pays interest but cannot be withdrawn on demand
CIt is held by businesses rather than by households
DIt can be spent directly by writing out a cheque
Answer & Solution
Correct answer: B. It pays interest but cannot be withdrawn on demand
1. A time deposit is a deposit at a bank or other financial institution that pays interest but cannot be withdrawn on demand.
2. Certain savings accounts, money market deposit accounts and certificates of deposit are the usual examples.
3. A demand deposit gives the opposite right, which is withdrawal at any time.
4. Neither kind of deposit is currency, since currency is only coins and paper money.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.1 Show Me the Money_
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