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A demand deposit is any type of account where the money in the account may be withdrawn at any time without prior notice to the financial institution. The most common types of demand deposits are checking accounts and savings accounts.  These accounts may be accessed via the teller window at the bank, ATMs or online.  Demand deposits are in contrast to timed deposits, such as certificates of deposit, that must remain in the account for a specified time before they can be withdrawn. 

Most demand deposits pay very little, if any, interest.  Checking accounts typically pay no interest.  Savings accounts usually pay a nominal interest rate.  Another demand account, called the Negotiable Order of Withdrawal (NOW) account, is a blend of a savings account and checking account in that checks can be written against the account and it pays a small amount of interest.  Interest on these accounts is low because of their highly liquid nature.  Banks are unwilling to pay higher interest rates for deposited money that may be gone after a short time.  That’s why rates for timed deposits, such as certificates of deposit, are always higher. 

Demand deposits make up the bulk of the money supply metric called M1.  M1 is the sum of all of a country’s demand deposits, plus currency.  For most developed countries, checks and transfers drawn against demand deposits make up the vast majority of payments for goods and services within the country.

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