Introduction to Demand Deposit
Demand deposits refer to deposits that are made into the various types of demand deposit accounts or DDA. These demand deposit accounts or DDA are bank accounts through which deposits can be withdrawn anytime, without any advance notice to the bank. The bank usually pays a small amount of interest on the deposits made through these bank accounts.
The Demand Deposit account holders usually use these deposits to satisfy their day to day needs. There can be however a maximum limit to the deposits being withdrawn from these accounts; this limit may be a daily limit or the limit may be the account balance of the account holder.
In simple terms, demand deposits are accounts through which you can withdraw money anytime you need without giving any prior application or notice. You must be familiar with some common demand deposit accounts like the checking account and savings account.
These accounts can have joint owners where, either owner can withdraw money from the account when needed. It is important to understand that these accounts are different from the term deposit accounts where the funds are locked for a certain time period, till which the depositors have to wait for making a withdrawal.
Types of Demand Deposits
There are three common types of demand deposits which are as follows:
Savings account
You must be quite familiar with a savings account. This is a type of demand deposit account or DDA which holds the funds for a long duration and has a minimum required balance so almost everyone can open a savings account. In addition to that if you put a larger amount of money in your savings account, it gives a higher interest.
Checking account
This is another most common type of demand deposit account or DDA. These accounts offer a high liquidity which allows the money to be withdrawn at any time when required. These accounts earn a very low interest or no interest at all. When earned, the interest depends upon the financial provider. These accounts are generally for a short-term use as opposed to the savings accounts which are long term.
Money Market Account
This account is specifically for the demand deposits that follow the market interests. The market interest rates are affected by the economic activity of the central banks. Therefore, the interest provided by the money market accounts depends on the market interest rate and it can be either less or more than that provided by the savings account.
