Implicit Interest on Demand Deposits

Richard Startz

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: Traditionally, monetary theory assumes money bears zero interest. More recently, it has been recognized that banks implicitly pay interest through providing free services. In this paper, the implicit interest rate is estimated from two different sources. Implicit interest appears to be about one-half of what a competitive rate would be in the absence of the prohibition against explicit interest.

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Journal Article: Implicit interest on demand deposits (1979)
Working Paper: Implicit Interest on Demand Deposits
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