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In Summary
A demand deposit is money kept in a bank account that can be withdrawn whenever the account holder requires it, subject to the account's terms and applicable banking rules. Savings accounts and current accounts are common examples of demand deposits in India. These accounts provide convenient access to funds for everyday expenses, bill payments, transfers and business transactions.
- Meaning: A demand deposit is a bank deposit that is repayable on demand.
- Types: Savings accounts and current accounts are the most common types of demand deposit accounts.
- Liquidity: Funds can generally be accessed without waiting for a fixed maturity date.
- Interest: Savings accounts generally earn interest, whereas current accounts typically do not.
- Difference from fixed deposits: Demand deposits prioritise accessibility, while fixed deposits keep money invested for a chosen tenure to earn interest at an agreed rate.
What is a demand deposit?
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A demand deposit is money deposited with a bank that the account holder can withdraw on demand. Unlike a fixed deposit (FD), it does not require the account holder to wait until a predetermined maturity date to access the funds.
According to the Reserve Bank of India (RBI), a demand deposit is a deposit received by a bank that is withdrawable on demand. Savings accounts and current accounts are common examples.
Demand deposits are generally used to manage day-to-day finances. Individuals may use them to receive salaries, pay household bills and transfer money, while businesses may use them to collect payments and manage operating expenses.
For example, if an individual maintains Rs. 25,000 in a savings account, the money can generally be used for eligible withdrawals, payments or transfers whenever required, subject to the bank's applicable terms.
What are the types of demand deposits?
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Demand deposits are commonly categorised into savings deposits and current deposits. Both provide access to funds, but their intended uses and interest arrangements differ.
1. Savings account
A savings account is a deposit account designed primarily for individuals who want to keep their money accessible while earning interest on their balance.
Its common features include:
- Interest earnings at the rate offered by the bank.
- Access to funds through eligible withdrawals and digital payment methods.
- Facilities such as debit cards, online banking and fund transfers, depending on the bank and account type.
- Applicable transaction limits, minimum balance requirements or other account conditions.
Savings accounts are generally suitable for salary receipts, emergency funds and routine household expenses.
2. Current account
A current account is generally used by businesses, companies, firms and other entities that need to make frequent payments and receive money regularly.
Its common features include:
- Frequent deposits, withdrawals and transfers, subject to account terms.
- Facilities for managing business receipts and payments.
- Overdraft facilities where offered and approved by the bank.
- Generally no interest on the account balance, although the bank's applicable terms should be checked.
Current accounts are useful for managing business cash flow, paying suppliers and receiving customer payments.
What are the features of demand deposits?
Demand deposits offer several features that make them suitable for managing readily accessible money.
1. Easy access to funds
Account holders can generally withdraw or transfer available funds without waiting for a fixed deposit tenure to end. Access depends on the account's terms, transaction limits and applicable banking rules.
2. High liquidity
Liquidity refers to how easily money can be accessed or used when needed. Demand deposits offer relatively high liquidity because the funds are generally available for everyday financial transactions.
3. Interest earnings on eligible accounts
Savings accounts generally earn interest at the applicable bank rate. Current accounts typically do not earn interest. The actual interest terms depend on the account type and bank.
4. Convenient transactions
Demand deposit accounts may provide access to services such as ATM withdrawals, debit cards, internet banking, mobile banking, UPI payments and electronic fund transfers, depending on the account and bank.
5. No fixed investment tenure
Unlike fixed deposits, demand deposits do not ordinarily require funds to remain invested for a predetermined period. This makes them useful for managing short-term financial needs.
What are the benefits of demand deposits?
Demand deposits can help individuals and businesses manage their money efficiently. Their main benefits include:
- Convenience: Money can generally be accessed through banking channels without waiting for maturity.
- Everyday money management: Account holders can use these accounts to receive income, pay bills and make transfers.
- Flexibility: Funds can be retained for upcoming expenses and accessed as required, subject to account terms.
- Digital banking access: Eligible accounts support convenient electronic payments and transfers.
- Interest on savings: Savings accounts can provide interest on eligible balances while keeping funds accessible.
The benefits may vary according to the bank, account type, balance requirements and transaction conditions.
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What is the difference between demand deposits and fixed deposits?
Demand deposits and fixed deposits differ mainly in their accessibility, tenure and interest arrangements.
| Basis | Demand deposits | Fixed deposits |
|---|---|---|
| Meaning | Money generally withdrawable on demand | Money deposited for a specified tenure |
| Examples | Savings and current accounts | Cumulative and non-cumulative FDs |
| Accessibility | Generally available when required | Normally held until maturity; premature withdrawal is subject to applicable terms |
| Tenure | No fixed maturity period | Fixed tenure selected at booking |
| Interest | Savings accounts generally earn interest; current accounts typically do not | Interest is paid according to the selected deposit scheme |
| Primary purpose | Everyday transactions and accessible savings | Saving money for a defined period |
| Returns | Savings account rates depend on the bank | FD rates are generally agreed upon at booking for the chosen tenure |
Demand deposits may be suitable for money needed for regular expenses or unexpected requirements. Fixed deposits may be considered for funds that can remain invested for a specified period. The appropriate choice depends on liquidity needs, financial goals and the terms offered by the bank.
How can you open a demand deposit account?
The process for opening a savings or current account varies by bank and account type. The general steps are:
- Choose the account type: Select a savings account for personal banking or a current account for eligible business requirements.
- Compare account terms: Review minimum balance requirements, charges, transaction limits, interest rates, where applicable, and available facilities.
- Complete the application: Apply through the bank's website, mobile application or branch, where available.
- Submit the required documents: Provide the prescribed identity, address and other documents. PAN, Aadhaar or alternative documents may be required, depending on the applicable KYC requirements and account type.
- Complete verification: Follow the bank's identity verification and Know Your Customer (KYC) process.
- Activate the account: Once the application is approved, follow the bank's instructions to fund and use the account.
Before opening an account, review the bank's current eligibility criteria, service charges and operating conditions.
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