What is a Demand Deposit?

Funds in a bank account (demand deposit account) are termed Demand Deposits. This is the amount available for immediate use, i.e., on-demand. It is ready money for the account holder. This is the simple demand deposit meaning. Common demand deposit examples are the deposits in a checking account and savings account.

Demand Deposit Account Definition

A demand deposit account (DDA) is a bank account used by an individual to keep his/ her funds. The primary feature of a demand deposit account is its high liquidity. DDA allows the account holder to withdraw the deposit anytime. Whenever the need for funds arises, the account holder can access funds immediately. Hence, the amount in this sort of account is a demand deposit.

How Demand Deposit Account Works

A Demand Deposit Account offers unlimited access to depositors for in-person and ATM withdrawals. Generally, withdrawal is made to meet their day-to-day needs, make a purchase, and pay a bill. DDAs pay little or no interest to the account holder.

Banks set a maximum cap to DDA deposits. An account holder can withdraw money from his/ her account up to the maximum limit. It may be a per-day limit or monthly limit. Also, an account holder needs to maintain a minimum account balance as per the set minimum limit. It can be a monthly limit or an average balance limit (quarterly or annually).

There are various types of DDA accounts. These bank accounts may have two or more account holders. They need to sign the account opening/ closing form together. Either of the account owners can withdraw funds from the account. Widely available different types of demand deposits/ accounts are given below:

1. Savings Account

It is an interest-bearing demand deposit account. Generally, every individual holds a savings account. It is the most common demand deposit account. It is a long-term account and involves minimal risk to funds.

A savings account holds your money safely for as long as you want. Since it requires a meager minimum balance, almost every individual can open a savings account.

Generally, there is no limit to holding the money in this account. A big amount in your savings account gives you higher interest.

Savings accounts falling below the minimum limit attracts a penalty. Every time the balance drops below the minimum limit, the bank will charge a fee.

2. Current Account (Checking Account)

A current account is meant for everyday banking. It is typically business accounts that meet the requirement of frequent transfers between companies and businesses for daily business activities. It does not have a transaction limit. An account holder can withdraw and deposit money as many times within a single day. Therefore, these accounts are quite useful for small businesses.

A current account comes with high liquidity to withdraw the money. It has a higher minimum balance requirement as compared to savings accounts.

Depending on the financial institution, it carries a meager interest rate or no interest at all.

3. Non-resident External deposit account (NRE Deposit Account)

It is an account used by an NRI depositor to transfer foreign earnings to India. The account holder can deposit foreign currency and withdraw in Rupees. The amount in this account can be repatriated.

4. Non-resident ordinary deposit account (NRO Deposit account)

An NRI can open this account to manage his/ her income earned in India. This account allows the depositor to repatriate the interest amount fully, but there is a set limit to transfer the principal amount.

Due to a low-interest rate, demand deposit accounts may lose the interest of many. Still, it is a necessity of every individual.

Demand Deposit and Time Deposit

Sometimes Demand Deposits are confused with time/ term deposits. Demand and time deposits are different deposits in different accounts.

Time deposit refers to the funds deposited and locked for a specific period (tenor), and the depositor must wait until tenor completion to make a withdrawal. On the other hand, demand deposit accounts allow money withdrawal anytime. Demand deposits are used to measure the country's money supply and represent the most liquid money in the money supply.

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Demand Deposit Faq’s

What is a Demand Deposit?

Demand deposits are the funds deposited in a bank account that allow the account holder to withdraw the money as and when needed, for example, funds in a bank savings account and current account.

What is a demand deposit account?

A Demand Deposit Account (DDA) is a bank account where you deposit the money for easy withdrawal to make your day to day transactions. It can be a savings account or a current account in a bank.

Types of Demand Deposits

There are four types of Demand Deposits:

  • Savings Account Deposits
  • Current Account (Checking Account) Deposits
  • Non-resident External Account Deposits
  • Non-resident ordinary Account Deposits
How do you calculate demand deposits?

A Demand deposit is simply is the total of deposits made in the savings and current account in a country. The following formula is used to calculate the maximum level by which demand deposits can expand:

ADD = AER/r

where:
ADD - the expansion of demand deposits
AER - the excess reserves in the banking system
r - the required reserve ratio.

Demand deposits make the largest part of the money supply in a country called M1.

M1 = Sum of all Demand Deposits in a country + All the Circulated Currency in a country.

All together, it measures the most liquid types of money.

What is the difference between time deposit, fixed deposit and demand deposits?

Time Deposit 

When you invest money for a certain period at a fixed interest rate, it is called a time deposit. You can deposit a lump sum or monthly amounts. Fixed deposits and Recurring Deposits are the types of term deposits.

Demand Deposit

In contrast, Demand Deposits are the amount in conventional bank accounts, i.e., Savings account and Current account. You can withdraw money on demand. Generally, a very low or no interest rate is applicable to demand deposits.

Bajaj Finance Fixed Deposit Vs Demand Deposit

Bajaj Finance Fixed Deposit

Bajaj Finance Limited is a non-banking financial institution (NBFC), and Bajaj Finance Fixed Deposits are the corporate FDs available at a higher interest rate than banks and post office FDs. FD product of Bajaj Finance is accredited with high credit ratings -FAAA/ STABLE by CRISIL and MAAA/ STABLE by ICRA that ensures the highest safety of your savings. It is a flexible investment available for a tenor of 12-60 months. You can earn as high as up to 7.60% p.a. interest on your FDs.

Demand Deposit

On the other hand, the Demand Deposit is a deposit in your bank savings account or current account that offers a very low-interest rate. Depending on the terms, a bank can pay a low interest or no interest at all on your current account. Savings account deposits can give meagre interest amounts.

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