A has $1,000 in X Bank. He does not wish to draw checks against this amount. So he asks for a "certificate of deposit" from the bank. This is practically a receipt stating that "A has deposited in this bank one thousand dollars payable to his order when he returns this certificate.,, It is signed by the cashier. If certificates are made for a definite period, as for three or six or twelve months, they are often made with interest. They are really promissory notes of the bank.

Certificates of deposit are sometimes used to transfer cash from one place to another, especially when the place to which it is desired to transfer funds is a considerable distance away. The depositor may get a certificate of his deposit which will direct its payment to another person, and the latter will have no difficulty in getting the certificate cashed, or the amount credited to him at any bank. Again, A deposits $1,000 in a bank for safekeeping or for the use of some one else. He takes a certificate of deposit, stating that the sum has been deposited and is payable to the order of himself or of some other payee. Certificates of deposit are either "demand" or "time"; that is, payable on demand or at a stated future time. The custom is growing of issuing time certificates of deposit which are to be paid "on 31 days' notice" or "after 31 days' notice." This enables the bank to classify these funds as time deposits and under the Federal Reserve Act to carry a reserve of only 3% against them, whereas if the funds were covered by a demand certificate of deposit, a reserve of from 7 to 13% would be necessary. Time certificates are not negotiable, the funds represented thereby being transferable only on the books of the banking institution issuing the certificates.

Specimen Certificate Of Deposit

Certificate Of Deposit

Not Subject To Check

No..................Institute National Bank of Statetown 59-16

Statetown,........................... .192......

..........................................ha....deposited in this Bank

..............................................................Dollars payable to the order of...............................................

upon the return of this Certificate properly indorsed, with interest at

.........per cent. per annum if left..........months.

Payment Subject To 31 Days' Notice $.......... ..............................................

Cashier.