A:

There are essentially three types of accounts available as demand deposits: checking accounts, savings accounts and money market accounts. Demand deposits are one of the two types of banking deposits. The other type is time deposits.

Demand Deposits

Demand deposits are deposited funds held in an account from which money can be withdrawn at any time, with no penalty or requirement of advance notice.

Money market accounts, along with most checking and savings accounts, are available as demand deposit accounts. 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 high 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 automatic teller machines, or 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.

Time Deposits

Time deposits, also known as fixed deposits, are accounts for which there is a predetermined period of investment. Time deposits differ from demand deposits in that money cannot be withdrawn without penalty before the end of the investment period. A certificate of deposit, or CD, is an example of a time deposit account.

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