Loading the player...

What is a 'Demand Deposit'

A demand deposit consists of funds held in an account from which deposited funds can be withdrawn at any time from the depository institution, such as a checking or savings account, accessible by a teller, ATM or online banking. In contrast, a term deposit is a type of account that cannot be accessed for a predetermined period of time. M1 is a category of the money supply that includes demand deposits as well as physical money and negotiable order of withdrawal (NOW) accounts that have no maturity period but limited withdrawals or transfers.

BREAKING DOWN 'Demand Deposit'

Demand deposits provide the money consumers need for paying daily expenses. If depositors were required to notify their financial institutions before withdrawing funds, the depositors would have challenges making everyday purchases and paying bills.

Characteristics of Demand Deposit Accounts

Demand deposit accounts (DDAs) may have joint owners. Both owners must sign when opening the account, but only one owner must sign when closing the account. Either owner may deposit or withdraw funds and sign checks without permission from the other owner.

Financial institutions typically create minimum balances for demand deposit accounts. Accounts falling below the minimum value typically are assessed a fee each time the balance drops below the required value.

NOW Accounts, MMAs and Demand Deposits

Although negotiable order of withdrawal (NOW) accounts and money market accounts (MMAs) let holders deposit and withdraw funds on demand and typically pay market interest rates, they are not DDA accounts. MMAs typically limit withdrawals, or transactions including deposits, withdrawals and transfers, to six per month. Fees may apply if the limit is exceeded.

Cash Reserves and Demand Deposits

The amount of cash reserves a financial institution is keeping either in its vault or deposited with the Federal Reserve depends on the amount of demand deposits the institution is holding. The greater the amount of demand deposits, the more cash the institution reserves.

Regulation Q and Demand Deposits

Federal Reserve Regulation Q prohibits financial institutions from paying interest on demand deposits. However, the institution may give an account holder cash or credit payments or merchandise when opening an account. The account holder may not receive more than two payments annually, and the value of each payment may not exceed $10 for deposits under $5,000 and $20 for deposits exceeding $5,000.

Example of a Demand Deposit

In July 2016, Bank First reported net income for the second quarter of 2016 of $3.76 million, or $0.60 per share. The numbers represented an 11% increase in quarterly earnings over the same quarter the previous year. The increase was partly due to growth in demand deposit balances, which are a low-cost source of funding for the bank.

RELATED TERMS
  1. Bank Deposits

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

    A transaction deposit is a bank deposit that has immediate and ...
  3. Deposit Slip

    A deposit slip is a small written form that is sometimes used ...
  4. Deposit In Transit

    A deposit in transit is money that has been received by a company ...
  5. Foreign Deposits

    Foreign deposits are deposits made at, or money put in to, domestic ...
  6. Security Deposit

    A monetary deposit given to a lender, seller or landlord as proof ...
Related Articles
  1. Personal Finance

    10 Bank Promotions That Pay You To Open An Account

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

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  3. 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.
  4. Investing

    Certificates Of Deposit

    Safety is a hallmark of the traditional certificate of deposit (CD) sold by a bank or credit union.
  5. Personal Finance

    These Savings Accounts Have the Highest Interest Rates

    Don't expect interest from a bank savings account to make you rich. You can do better, however, than the paltry 0.08% average paid in 2015.
  6. Personal Finance

    The 8 Best Bank Perks

    Many banks are now offering free perks to entice new customers.
  7. Personal Finance

    Best Checking Accounts For College Students

    Student checking accounts avoid the high fees and minimum balances of some other accounts. Here's how to evaluate offers and find one with the best terms.
RELATED FAQS
  1. Comparing deposits: demand versus term

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between these regular ... Read Answer >>
  2. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... 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 >>
Hot Definitions
  1. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  2. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  3. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  4. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  5. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
  6. Sharpe Ratio

    The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Trading Center