Introduction

What is a demand deposit? Here is a detail: Demand deposits can be accessed whenever you like, without letting the bank know beforehand. Demand deposits are often offered by checking or savings accounts. The funds hold most of the money used in everyday transactions, which is why they are critical to consumer spending.

Demand Deposits are Definable as follows:

DDAs are bank accounts that allow withdrawals at any point in time without prior notice, regardless of the reason. Debit cards, checkbooks, and transfers are available with demand deposit accounts, eliminating the need to carry cash. A price is, however, associated with constant access to funds. When compared with time deposits, demand deposits earn low-interest rates.

Generally, check accounts are withdrawal of funds from demand deposit accounts that is as simple as purchasing whenever you want. Cash can also be withdrawn from ATMs, transferred online, or removed from a bank teller. Moreover, a demand deposit account can also be a savings or money market account. Demand deposit accounts may pay little interest on demand deposit accounts in exchange for total accessibility.

Demand Deposits: How They Work

These are the steps involved in opening a demand deposit account:

• Upon opening an account with your bank, your demand deposit opens.
• Your deposits fund that account.
• Keeping your money safe is the bank's responsibility.
• Banks do not have to approve you for accessing cash at any time.
• Account maintenance fees also may apply to your bank.

Most bank fees are not applicable if you maintain sufficient balances or make direct deposits into your bank account. Fee policies vary from bank to bank.

Demand Deposit Types

Demand deposit accounts in a category divided into three types. Below is a description of these types:

Checking Account

There are many demand deposit accounts, but checking accounts are among the most common. In addition to the checkbook, the account includes a debit card suitable for paying bills, buying items in stores, placing orders online, and making payments to friends.

Bank checking accounts pay the slightest interest, even though they are one of the most accessible types of accounts. Interest earns little respect on checking accounts. You can open an online checking account, and income-earning checking account, a rewards account, a student checking account, or an elderly checking account, among others.

Savings Account

Demand deposit accounts include savings accounts as well. Despite a few limitations, it's worth remembering that saving accounts usually earn more interest than checking accounts. Regulation D limits your transfer and withdrawal capabilities to six-monthly, for example.

A transfer or withdrawal initiated by telephone, fax, or computer includes here, as is a transfer or retreat that is preauthorized or automatic (for example, a transfer for direct bill payment or overdraft protection). The six-per-month limit includes cash withdrawals at an ATM, in person, or via mail.

Savings accounts do not typically come with ATM cards, which means you'll have to transfer money to another account if you want to use an ATM. If you exceed this limit, your bank may charge a fee or convert your savings account into a checking account. It remains possible for banks to require a seven-day written notice for withdrawals, even if it is seldom or never used in practice.

Money Market Account

An account with money market characteristics is similar to a savings and checking account combination. With a checking account, you earn less interest and cannot have access to checks or a debit card. Demand deposits appear in this account according to market interest rates. Economies of central banks affect market interest rates. Accordingly, money market accounts provide either lower or higher interest rates than savings accounts, depending on the market interest rate. If you want to open a money market account, your bank may require a higher balance.

Conclusion

It is feasible for consumers and businesses to invest in demand deposits because of their high liquidity. Demand deposits offer a risk-free return incomparable to other investment options. Also, these deposits provide much lower returns than other investment sources due to the low fees financial institutions apply to maintain them. Currency and demand deposits as well as define a country's money supply—most of the money supply takes place in demand deposits in most countries. Therefore, Demand Deposits are optimal for individuals who are mainly concerned with accessing funds easily rather than earning interest.