Demand deposits are funds held in bank accounts (often called Demand Deposit Accounts, or DDAs) that can be withdrawn by the account holder at any time without giving the bank advance notice. These accounts typically pay a small amount of interest on the deposited funds.
Demand deposit accounts are primarily used for everyday financial needs. While there may be daily withdrawal limits or restrictions based on the account holder's available balance, these accounts generally allow immediate access to funds.
In simplest terms, demand deposits are bank accounts that let you take out your money whenever you need it, without having to notify the bank in advance.
Demand deposits are essential for everyday expenses whereas fixed deposits (FDs) offer a way to earn higher interest on funds you don't immediately need. A smart financial strategy often includes both – demand deposits for flexibility and FDs for secure growth.
How does a Demand Deposit account work?
Maintaining a demand deposit account is hassle-free for small business owners, aiming to provide immediate access to funds. DDA holders are not required to notify their financial institution before making withdrawals from the account. Because funds from this account are available "on demand," and that is why it is referred to as a demand deposit.
Account holders can withdraw cash from the nearest ATM. However, the withdrawal amount must be available in the account. Although there are no restrictions on withdrawing funds, banks or financial institutions may set daily or maximum withdrawal limits for these accounts.
In a demand deposit account, any funds deposited by the account holder are termed as DDA credits while cash withdrawn from the account is referred to as a DDA debit.
Types of demand deposits
- Checking accounts
Checking accounts are a type of demand deposit account that offers high liquidity. This means you can withdraw funds whenever you need them. however, these accounts generally offer very low interest rates, sometimes even paying no interest at all. - Savings accounts
Savings accounts are the most common type of demand deposit account, designed for holding funds over a longer period. Typically, there is a minimum balance required to maintain a savings account, but these accounts are widely accessible. - Money market account
Market-linked accounts are a type of demand deposit account designed for account holders who closely follow interest rate trends. Unlike typical savings accounts, the interest rates on these accounts change frequently based on economic conditions and the actions of the Reserve Bank of India. This means daily fluctuations, making it harder to predict if they will consistently offer higher returns than a traditional savings account.
For those seeking stability, a fixed deposit offers guaranteed returns. Interest rates on fixed deposits are set at the starting of the term and are not dependent on market fluctuations.
Things to consider
- Demand deposit accounts (DDAs) can be owned by multiple individuals or have joint owners. While the signature of both parties is required to open the account, only one owner is needed for closing it. Additionally, both owners have the authority to sign checks, deposit cash, or withdraw funds from the account without needing permission from the other.
- It is important to note that demand deposit accounts often have minimum balance requirements. If your balance falls below this amount, your bank may charge a fee. Be sure to check the terms of your specific account.
Benefits of Demand Deposit accounts
- Ideal for everyday transactions and instant access to cash.
- Withdraw funds whenever needed without fees or prior notice to the bank.
- You can easily open as a single or joint account.
- No permission needed from the bank to access your funds.
Demand deposit vs Fixed Deposit
Feature |
Demand deposit |
Fixed deposit |
Accessibility |
Money can be withdrawn at any time without penalty |
Funds locked for a specific period, early withdrawal may incur penalties |
Interest rates |
Typically offer lower interest rates |
Offer higher interest rates, especially for longer tenure |
Purpose |
Ideal for everyday spending, bills, unexpected expenses |
Suited for specific saving goals requiring a longer time horizon |
For high returns and peace of mind, consider a Bajaj Finance Fixed Deposit. They offer one of the highest interest rates (up to 8.85% p.a.) with the reliability of a AAA rating and the trust of over 5 lakh customers.
Conclusion
Demand deposits account is essential for managing everyday finances. Their flexibility, convenience, and security make them indispensable for individuals and businesses alike. By understanding demand deposits, their different types, you can make informed choices that align with your financial goals.