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Checking Accounts and Banks

Offering checking accounts for minimal fees, most large commercial banks use checking accounts as loss leaders.

A loss leader is a marketing tool in which a company offers a product below its cost or market value to attract consumers.

The goal of most banks is to attract consumers with free or low-cost checking accounts and then entice them to use more profitable offerings such as personal loans, mortgages, and certificates of deposit.

However, as alternative lenders such as fintech companies offer consumers an increasing number of loans, banks may have to revisit this strategy. Banks may decide, for example, to increase fees on checking accounts if they cannot sell enough profitable products to cover their losses.

Money Supply Measurements 

Because money held in checking accounts is so liquid, aggregate balances nationwide are used in the calculation of the M1 money supply. M1 is one measure of the money supply, and it includes the sum of all transaction deposits held at depository institutions, as well as currency held by the public.

M2, another measure, includes all of the funds accounted for in M1, as well as those in savings accounts, small-denomination time deposits, and retail money market mutual fund shares.