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M2 includes M1 and various forms of small time deposits. These deposits include savings accounts and certificates of deposits. Withdrawal or redemption of these deposits often leads to some penalty in lost interest.
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Holding money in a checking account earns very little interest or none at all. That is why it is preferable not to leave funds in excess of daily needs in checking accounts. The most convenient placement of such funds is in a savings account or a certificate of deposit. These can be redeemed on short notice, usually within a few hours: the time it takes to get to the bank. |
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