M1 includes most savings accounts, but not all of them
M1 is the measure of money supply that the Federal Reserve tracks to understand how much liquid money is moving through the economy. It includes cash in circulation and checking accounts — the money people can spend right now. Savings accounts are included in M1, but only the ones where you can withdraw money without penalty or long waiting periods.
The key distinction is speed. If you can move money from your account to spend it within a day or two, it counts toward M1. If the account locks your money away for months or charges you heavily for early withdrawal, it probably does not count. This matters because the Federal Reserve uses M1 to set interest rates and make decisions about the economy — so understanding what is included helps explain why some accounts behave differently from others.
Key Takeaways
- Regular savings accounts with no withdrawal restrictions count toward M1 because you can access the money quickly.
- Money market accounts that allow frequent withdrawals are included in M1, but some versions with limited access may not be.
- Certificates of deposit (CDs) and individual retirement accounts (IRAs) do not count toward M1 because they penalize early withdrawal.
- The distinction matters because M1 accounts offer lower interest rates than restricted accounts, reflecting how easily banks can access that money.
Which savings accounts count toward M1
A standard savings account at a bank or credit union counts toward M1. These accounts let you deposit and withdraw money whenever you want, with no penalty. You might earn a small amount of interest — currently ranging from near zero to around 4 or 5 percent depending on the bank and current economic conditions — but the interest rate is not the point. The point is that your money is available.
Money market accounts also count toward M1 in most cases. These accounts typically offer higher interest rates than regular savings accounts in exchange for requiring you to keep a larger minimum balance. You can still withdraw money without penalty, though some versions limit you to a certain number of withdrawals per month. As long as withdrawals are not heavily restricted, the Federal Reserve counts them in M1.
Savings accounts held at online banks count the same way as savings accounts at brick-and-mortar banks. The access speed is what matters, not the location of the bank. An online savings account where you can withdraw money the next business day is part of M1.
Accounts that do not count toward M1
Certificates of deposit (CDs) do not count toward M1. A CD is an account where you agree to leave your money untouched for a set period — three months, six months, a year, or longer. In exchange, the bank pays you a higher interest rate. If you withdraw the money early, you lose some or all of the interest you earned, or you pay a penalty. Because your money is not readily available, CDs are not part of M1.
Individual retirement accounts (IRAs) and 401(k) plans do not count toward M1, even if they hold savings accounts inside them. These accounts are designed for long-term retirement saving, and the government penalizes you heavily if you withdraw before age 59½. The restrictions are so significant that the Federal Reserve does not count them as liquid money.
High-yield savings accounts that require you to maintain a very high minimum balance or charge fees for falling below that balance may be treated differently depending on the specific terms. Most high-yield savings accounts count toward M1 because withdrawal is still penalty-free, but the Federal Reserve's classification can vary by institution.
Why the difference matters for interest rates
Banks pay lower interest on M1 accounts because they know customers can withdraw the money at any time. The bank cannot count on having your money for a predictable period, so it cannot lend it out with confidence. With a CD, the bank knows exactly when your money will stay put, so it can offer you more interest in exchange for that certainty.
This is why you will often see savings accounts paying 4 or 5 percent while a one-year CD at the same bank pays 5 or 5.5 percent. The extra half-percent is the bank's way of paying you for locking your money away. If you need access to your money, the lower M1 rate is the trade-off.
How the Federal Reserve uses M1 data
The Federal Reserve publishes M1 numbers every week to track economic activity. When M1 grows quickly, it usually means people and businesses have more money to spend, which can push prices up. When M1 shrinks, it can signal that money is becoming tighter. The Federal Reserve uses these trends to decide whether to raise or lower interest rates.
This is why savings accounts matter to the broader economy. Your savings account is not just your money — it is part of the data the Federal Reserve watches to manage inflation and employment. Understanding what counts as M1 helps explain why the Federal Reserve cares about how much money is sitting in accounts that people can access when ready.
The relationship between M1 and other money measures
M1 is the narrowest measure of money supply. The Federal Reserve also tracks M2, which includes M1 plus savings accounts with some restrictions, money market funds, and small CDs. M3 is even broader and includes large CDs and other less liquid assets. Each measure tells a different story about the economy.
For your purposes as a saver, the main thing to know is that M1 accounts are the most accessible but typically pay the lowest interest. As you move to M2 and M3 accounts — accounts with more restrictions — you generally earn more interest. The choice depends on when you think you will need the money.
Frequently Asked Questions
Does my savings account have to be at a big bank to count toward M1?
No. Savings accounts at credit unions, online banks, and smaller regional banks all count toward M1 the same way. The Federal Reserve counts any savings account where you can withdraw without penalty, regardless of the bank's size or location.
If I have multiple savings accounts, do they all count toward M1?
Yes. Each savings account you own counts separately toward M1. If you have a savings account at Bank A and another at Bank B, both are included in the Federal Reserve's M1 calculation. The total amount of money in all your accessible accounts is what matters.
Can a savings account stop counting toward M1 if the bank changes its rules?
Yes, if a bank adds restrictions that prevent you from withdrawing without penalty, the Federal Reserve might reclassify that account. For example, if a bank started charging a fee for each withdrawal after the first one per month, it could move from M1 to M2. Always check your account terms when your bank makes changes.
Why do some people say savings accounts are not "real" money?
They are using informal language. Savings accounts are definitely real money — the Federal Reserve counts them in M1. What people sometimes mean is that savings accounts earn very little interest compared to other options, so the money is not working hard for you. That is a different question from whether the account counts toward M1.