Introduction to Finance

credit money 
money backed by 
the creditworthiness of the issuer
deposit money 
money backed 
by the creditworthiness of the 
depository institution that issued 
the deposit

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2.6 Money Market Securities
33
check in its own demand deposit account in a bank (e.g., Last Bank). The check then must be 
processed and cleared through the banking system, either with or without the assistance of the 
Fed. That is, it must be returned to First Bank, which will pay the check amount to Last Bank 
and deduct $1,000 from the business fi rm’s demand deposit account at First Bank. To aid and 
speed the clearing process, copies of checks can be sent electronically rather than having to 
wait for actual paper checks to be delivered.
The use of electronic ways to transfer funds held in demand and other checkable deposit 
accounts continues to increase and replace the use of more costly and time consuming paper 
checks. 
Automatic transfer service (ATS) accounts
are used to make direct deposits to and 
payments from checkable deposit accounts. Employers often have their employees’ wages 
deposited directly in their employees’ checking accounts, rather than issuing payroll checks. 
Electronic funds transfers for payment of utility bills, mortgage loans, credit card balances, 
and so forth, are increasingly common.
Debit cards
provide for the immediate direct transfer of deposit amounts. For example, 
when a debit card is used to purchase merchandise at a retailer’s point-of-sale (POS) cash 
register or from their Internet sites, the card holder’s bank transfers the designated amount from 
the purchaser’s demand account to the retailer’s account. Debit cards also are used to make 
cash withdrawals from automated teller machines (ATMs). When cash is dispersed, the user’s 
demand deposit account’s balance is immediately reduced by the amount of cash withdrawn.
A number of fi rms have recently introduced digital and mobile payments systems designed 
to provide more effi
cient online and POS experiences. Examples are Apple Pay, PayPal, and 
Square. The impact will be continued movement toward the use of less physical money and a 
cashless, or cash-free, monetary system.