Idle money is an economic term that refers to any money that is figuratively idle in the sense that it is not doing anything at all to benefit anyone, especially the owner. This term may be applied to any type of money in the bank that is not earning any appreciable amount of interest or that is not earning any type of interest at all. Another way of describing this type of money is to refer to it as barren money, for the obvious reason that the money is not bearing any sort of fruit for the owner.
An example of idle money is more commonly the money that is placed in a checking account. The higher the amount of money in such an count, the more tragic in economic terms due to the fact that the money might be applied toward other profit or interest yielding purposes. At the very least, placing such money in a savings account will earn some degree of interest, which is preferable to the state of economic returns inactivity that it is experiencing in the checking account.
This is not to say that it does not make any sense to have money in a checking account. From an economic point of view, the more money that is placed in the checking account is directly related to the loss of additional revenue that might have accrued from it, especially if the account owner hardly uses more than a tiny fraction of that money. An illustration of the concept of idle money can be seen in a situation where Mrs. B has placed $35,000 US Dollars (USD) in her checking account. Assuming Mrs. B hardly ever used more than $3,000 USD per month, the rest of the money would be idling in her checking account.
If on the contrary, if Mrs. B leaves about $5,000 USD in her account and places the rest in a savings account, the money will at least earn her a guaranteed interest. The exact rate of interest will be determined by the effects of the combination of fiscal and monetary policies, in addition to the bank’s personal policies. By putting the money in a savings account, Mrs. B has converted the previously idle money into some sort of active money, even if the level of activity is minimal and passive. Another type of idle money is the liquid cash people may store somewhere.
