Why Do People Hold Deposits?

36 Pages Posted: 15 Apr 2022 Last revised: 11 May 2022

See all articles by Linda Sandris Larsen

Linda Sandris Larsen

Copenhagen Business School

Ulf Nielsson

Copenhagen Business School

Oliver-Alexander Press

Copenhagen Business School

Jesper Rangvid

Copenhagen Business School

Date Written: May 11, 2022

Abstract

We provide the first comprehensive tests in the household finance literature of why individuals invest in deposits, for many their largest and sometimes only financial asset. Our findings are threefold. Using detailed register data covering every individual in Denmark we first show that people actively readjust their deposits following an exogenous increase, as captured by unexpected inheritances. Second, we find that people use deposits and voluntary unemployment insurance as substitutes. Finally, interest rates paid on deposits do not drive deposit demand. Collectively, these results support that people hold deposits primarily for precautionary reasons.

Keywords: household finance, bank deposits, liquidity management, precautionary savings

JEL Classification: G11, G51

Suggested Citation

Larsen, Linda Sandris and Nielsson, Ulf and Press, Oliver-Alexander and Rangvid, Jesper, Why Do People Hold Deposits? (May 11, 2022). Available at SSRN: https://ssrn.com/abstract=4054526

Linda Sandris Larsen

Copenhagen Business School ( email )

Solbjerg Plads 3, A5
Frederiksberg, 2000
Denmark

Ulf Nielsson

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Oliver-Alexander Press (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Jesper Rangvid

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
DENMARK

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