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Deposit Definition

What Is a Demand Deposit?


A DDA account is a bank account that allows the account holder to withdraw deposited funds at any time without giving advance notice. Although DDA accounts can pay interest on deposited funds, they don’t have to. DDAs can come in the form of checking accounts and savings accounts.


How Demand Deposits Work


Quite a challenge would be to obtain cash or make mundane transactions if depositors were required to notify their banks before withdrawing funds. Demand deposit accounts are intended to provide ready money—the fund’s people need to make a purchase or pay bills.

The account holder can access the account’s holdings at any time, without prior notice to the institution, by simply walking up to the teller or the ATM—or, increasingly, going online—and withdrawing the sum they need; as long as the account has that amount, the institution has to give it to them. This sort of account is called a “demand deposit” because the money is available “on-demand.”


Demand deposit accounts, typically offered by banks and credit unions, contrast with investment accounts offered by brokerages and financial services firms. While the funds may be invested in highly liquid assets, the account holder still must notify the institution of their wish to withdraw money; depending on the asset in question, it may take a day or two for the investments to be sold and the cash to be available.

“DDA” can also mean direct debit authorization, a withdrawal from an account to purchase a good or service. It authorizes the company to take the money from your account when the service is provided, or the good is shipped. The linked account’s money is immediately available for your use.


Special Considerations


Both owners must sign when opening the account, but only one owner is required to sign when closing the account. Both owners may deposit or withdraw funds and sign checks without permission from the other owner.

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Banks may require a minimum balance for demand deposit accounts and may assess a fee each time the balance falls below the required value. However, many banks now offer services with no monthly fees or minimum balances.


Types of Demand Deposit Accounts (DDAs) 


Both DDAs and MMAs can include checking and savings accounts, but MMAs are a bit of a gray area: Some financial authorities classify them as DDAs, and some don’t. As of May 2022, the total demand for deposit accounts in the U.S. was $4.98 trillion, compared to $1.4 trillion five years ago and $733 billion 10 years ago.


Demand Deposits: Total


Requirements for Demand Deposits

DDAs have no limitations on withdrawals or transfers, no set maturity or lockup period, funds accessible on-demand, and no eligibility requirements.

Banks can now pay interest on demand deposit accounts, but the amount of interest is up to the individual institution. The Federal Reserve Board’s Regulation Q, enacted in 1933, prohibited banks from paying interest on checking account deposits.

The repeal of Reg Q in 2011 allowed banks to pay interest on checking accounts via negotiable order of withdrawal (NOW) accounts, which have a temporary holding period on funds.

Still, DDAs tend to pay relatively low-interest rates (on savings accounts) or no interest at all (as is often the case with checking accounts, Reg Q’s repeal notwithstanding). They may also charge various fees for handling the account.


Demand Deposit vs. Term Deposit


A demand deposit account and a term deposit account are financial accounts offered by banks and credit unions. Still, they differ regarding accessibility or liquidity and the amount of interest earned on the deposited funds.

A DDA allows funds to be accessed anytime, while a term deposit account—also known as a time deposit account—restricts access to funds for a predetermined period. Withdrawal from a term deposit account usually incurs a financial penalty and requires written notice in advance.

The most familiar type of term deposit account is the certificate of deposit (CD). It sits in a special account and earns interest at a fixed rate. The CD is bought for a set term or period—a certain number of months or years—and is generally not touched until the term is up.

Demand deposits’ second big distinction from term deposits is the interest rates. Term deposits offer interest rates generally higher and closer to the market rates than DDAs. The trade-off is this: you earn less interest on your money in a DDA in return for the ability to access your funds on demand. The time deposit pays more interest in compensation for its lack of liquidity.

How do money market accounts (MMAs) fit into the equation? They’re a hybrid. They typically pay market interest rates (which fluctuate). If you exceed the limit on monthly withdrawals or other transactions (like transfers) on your MMA account, some banks may charge you a fee. However, they might not be as on-demand as regular demand deposit accounts even though they let account-holders deposit and withdraw funds whenever they want.


What Does DDA Mean on a Bank Statement?


The acronym DDA stands for “demand deposit account,” which means that the funds in the account are available to be used immediately. DDA can also stand for “direct debit authorization,” which is a transaction that immediately subtracts money from the account.


What Is a Consumer DDA Account?

An account that lets you withdraw funds without giving the financial institution any advance notice is called a consumer DDA or demand deposit account.


What Is the Difference Between Demand Deposits and Time Deposits?

Funds in a demand deposit account, such as a checking account, are immediately available to the account holder. In contrast, time or term deposits, such as certificates of deposit (CDs), are locked for a certain period.



What Are the Advantages of Demand Deposit Accounts?

With demand deposit accounts, you can withdraw the funds in cash or pay for something (using a debit card or online transfer) at any time, without giving the bank notice, incurring a penalty, or paying fees. The sentence could be rewritten as:

They offer great convenience for getting cash or transferring funds to another account or party.


The Bottom Line

Demand deposit accounts, which banks and credit unions offer, let you deposit and withdraw funds immediately, whenever you want—”on-demand,” in effect. DDAs usually take the form of checking or savings accounts, ideal for frequent or everyday needs. The financial institution can’t require advance notice or charge a fee for letting you access the funds.

The main advantage is that they offer little or no interest in their money. That’s the price you pay for the funds being readily available.



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