are reasons why banks can and usually do pay interest on time deposits (at from 2 to 4 per cent), as until more recently they rarely did on demand deposits[4].  From the standpoint of the depositor a time deposit is, by its very nature, an investment and not a demand credit available for current monetary uses.  Only that portion of a person’s capital that for some more or less considerable period is not likely to be needed for other purposes ought to be put into time deposits.  A bank, however, is generally a much safer place in which to keep a fund of purchasing power for the future than is the strongest private treasure box.  Receiving time deposits is the one essential function of savings banks, but this function is increasingly performed by other banks[5].  Sometimes time deposits are cared for by a separate department and kept separate from the general business of a commercial bank.

Sec. 5. #Demand deposits#.  Demand deposits are those payable on demand, the demand in practice being by means of personal checks requesting the bank to pay to (or on the order of) a specified person, or to pay to bearer.  A customer’s bank account consisting of demand deposits is called a checking account.  Since the turn of the century it has become increasingly the practice to pay a low rate of interest (about 2 per cent) on current balances, oftener to large depositors.  Banks attract demand deposits mainly by the convenience and economy which they offer to their customers in the guarding of funds from theft and fire and in saving the time, trouble, and expense of carrying money for making payments.  A deposit in a bank is to the depositor for most purposes “just as good” as money in the pocket and for many purposes is even better.  Thus the banks have become the custodians of a large proportion of the money (or funds) needed for current use by individuals and business corporations.

Sec. 6. #Discount and deposit#.  The process of discount and deposit is the purchase of the promissory note of a customer,[6] the price being a credit in the form of a demand deposit on the books of the bank.  This—­the central and most characteristic banking operation—­has something of mystery in it at first view.  The simplest idea of making a deposit is that of bringing to a bank window bags and rolls of money or other funds (credit papers such as checks and drafts, calling for the payment of money).  The bank in that case becomes the debtor and the depositor becomes the creditor of the bank.  But in discount and deposit the depositor brings no money, and the credit paper that he gives is his own promise to pay whereby he becomes the bank’s debtor.  For example, when a bank discounts a thousand dollar note for three months and credits its customer with the proceeds, its deposits are at that moment increased (let us say) $985.  Notice that hereby the bank does not add a cent to the cash in its vaults while it has added to its liabilities payable on demand.  As an off-setting asset it holds the note of its customer receivable at some future time.