Loading the player...

Demand deposits and term deposits refer to two different types of deposit accounts available at a bank or similar financial institution, such as a credit union. Demand deposits and term deposits differ in terms of accessibility or liquidity, and in the amount of interest that can be earned on the deposited funds.

Term Deposits

Term deposits, also known as time deposits, are investment deposits made for a predetermined period of time, ranging from a few months to several years. The depositor receives a predetermined rate of interest on the term deposit over the specified time period. Funds deposited for longer time periods command a higher interest rate. Term deposit accounts pay a higher rate of interest than traditional savings accounts.

Funds cannot be withdrawn from a term deposit account until the end of the chosen time period without incurring a financial penalty, and withdrawals often require written notice in advance. At the end of the time period, the depositor has the choice of withdrawing deposited funds plus earned interest, or rolling over the funds into a new term deposit. The most common form of a term deposit is a bank certificate of deposit, or CD.

Demand Deposits

Demand deposit accounts offer greater liquidity and ease of access as compared to term deposits but pay lower interest rates, and they may also include various fees for handling the account. Depositors can withdraw any or all of the funds in a demand deposit account at any time without penalty or prior notice required.

Funds a depositor may need to access at any time that provide the depositor with sufficient personal liquidity to handle his or her regular expenses should be kept in a demand deposit account. Examples of demand deposit accounts include regular checking accounts, savings accounts or money market accounts.

Money Market, Checking, or Savings?

Money market accounts have low fees and generally offer higher returns than savings accounts; however, the fluctuation of interest rates means no fixed amount of interest is earned on the account.

Checking accounts typically have higher fees and do not pay any interest to the holder, although some checking accounts earn a slight amount of interest. These accounts are favorable for individuals doing a lot of business or those who frequently need to access funds immediately for the purchasing of goods or services.

Savings accounts are demand deposit accounts that typically have no fees attached. Interest rates on savings accounts are fixed and lower than interest rates available on time deposits.

Both checking and savings accounts are accessible by the account holder through various banking options such as teller service, online banking and ATMs.

The Federal Reserve’s Consumer Compliance Handbook lists the basic characteristics of demand deposit accounts: no limitations on transfers or withdrawals made by the account holder; no maturity period, or an original maturity of six days or less; funds are paid on demand; the account has the potential to bear interest; and there are no eligibility requirements. (For more, see: What are the Federal Reserve's guidelines on demand deposit accounts?)

  1. What are the Federal Reserve's guidelines on demand deposit accounts?

    Read about some of the Federal Reserve's requirements and guidelines regarding the treatment, safeguarding and processing ... Read Answer >>
  2. What proportion of my income should I put into my demand deposit account?

    Find out how much money to keep in your liquid demand deposit accounts, such as checking or savings accounts, and discover ... Read Answer >>
  3. How does the deposit multiplier affect a bank's profitability?

    Find out how a deposit multiplier affects bank profitability, how it increases the supply of money in the economy and why ... Read Answer >>
Related Articles
  1. Personal Finance

    Where To Put Your Cash: Call Deposit Vs Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
  2. Personal Finance

    10 Bank Promotions That Pay You To Open An Account

    Find out which banks are running cash promotions this summer.
  3. Personal Finance

    Get the Best Savings Interest Rates For You

    How do you choose between market deposit accounts, CDs and traditional savings accounts?
  4. Personal Finance

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  5. Investing

    Debt Mutual Funds Vs. Fixed Deposits

    Learn about the advantages and disadvantages of debt-oriented mutual funds and fixed deposit accounts, including how each investment generates income.
  6. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  7. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  8. Personal Finance

    Best Checking Accounts For Couples

    Being a couple, especially if you both have jobs, can help you qualify for benefits and fee waivers that would be tougher to get on just one salary.
  1. Bank Deposits

    Bank deposits are money placed into a deposit accounts at a banking ...
  2. Demand Deposit

    A demand deposit is funds held in an account which deposited ...
  3. Call Deposit Account

    A call deposit account is a bank account for investment funds ...
  4. Deposit Interest Rate

    The deposit interest rate is the interest rate paid to deposit ...
  5. Time Deposit

    A time deposit is a savings account or certificate of deposit ...
  6. Core Deposits

    Core deposits are the deposits that form a stable source of funds ...
Trading Center