Bank's Vault Cash and Reserve Accounts: A Closer Look

What makes vault cash and reserve accounts similar?

1. Both provide for the bank's use of large amounts of cash.

2. Both are part of the money supply.

3. Both earn no interest.

4. Both are maintained by the bank at a fixed percentage set by the Federal Reserve.

Understanding Vault Cash and Reserve Accounts

Bank's vault cash and reserve accounts have some similarities in terms of their function and regulation.

1. Provides for the bank's use of large amounts of cash: Both vault cash and reserve accounts hold cash that banks can use to meet customer withdrawals or cover their reserve requirements.

2. Part of the money supply: Vault cash and reserve accounts are essential components of the money supply as they represent cash held by banks that can be used for transactions.

3. Earns no interest: Banks do not typically earn interest on either vault cash or reserve accounts as they are required to hold these funds to comply with regulatory requirements.

4. Maintained by the bank at a fixed percentage set by the Federal Reserve: Both vault cash and reserve accounts are managed according to reserve requirements established by the Federal Reserve, determining the percentage of deposits banks must hold as reserves.

It is important to note that vault cash is physically held by the bank, whereas reserve accounts are held at the Federal Reserve Bank.