What Is a Demand Deposit?

A demand deposit account (DDA) consists of funds held in a bank account from which deposited funds can be withdrawn at any time, such as checking accounts. DDA accounts can pay interest on a deposit into the accounts but aren’t required. A DDA allows funds to be accessed anytime, while a term deposit account restricts access for a predetermined time. 

1:19

Demand Deposit

Key Takeaways

  • Demand deposits provide the money consumers need for purchasing daily expenses, where funds can be withdrawn at any time from the depository institution. 
  • Demand deposit accounts can have joint owners, where both owners must sign to open the account, but only one account holder has to sign to close the account. 
  • Money market accounts, or other accounts that limit withdrawals or deposits, aren't demand deposit accounts.  

How Demand Deposits Work

DDA accounts provide the money consumers need to make a purchase. Funds can be accessed at any time. If depositors were required to notify their financial institutions before withdrawing funds, the depositors would have challenges making everyday purchases and paying bills. However, DDA can also mean direct debit authorization, which is a debit from an account for purchasing a good or service. 

Demand deposits are included as part of M1 currency—the most liquid types of money—when measuring money supply. 

Special Considerations

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.

Some banks 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. However, many banks now offer no monthly fees and no minimum balances. 

Types of Demand Deposit Accounts 

As of Sept. 16, 2019, the total amount of demand deposit accounts in the U.S. was $1.42 trillion. This compares to $1.1 trillion five years ago and $395 billion 10 years ago. The types of DDAs are primarily checking accounts but can include savings accounts. This is in contrast to term deposits, which have time constraints. Term deposits offer interest rates that are generally higher than savings accounts. The most common term deposit is certificates of deposit (CDs).

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.

Requirements for Demand Deposits

The key requirements of DDA accounts are no limitations on withdrawals or transfers, no set maturity or lockup period, accessible on-demand, and no eligibility requirements. 

Banks could not previously pay interest on demand deposit accounts. The Federal Reserve Board Regulation Q, enacted in 1933, prevented banks from paying interest on checking account deposits. That regulation was repealed in 2011. 

Many banks now offer checking accounts with interest. For example, as of Oct. 2019, Capital One offered a checking account with no minimum and a 0.20% annual interest rate.