Demand Deposit

Always Be Closing—ABC Definition

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A demand deposit account (DDA) consists of funds held in a bank account from which deposited funds can be withdrawn at any time, such as checking accounts.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 in the accounts but are not mandatory. A DDA allows access to funds at any time, while a term deposit account restricts access for a predetermined period.


Filing the application

Key points to remember

  • Demand deposits provide the money consumers need to buy everyday expenses, where funds can be withdrawn from the depository institution at any time.
  • Demand deposit accounts can have co-owners, where both owners must sign to open the account, but only one holder must sign to close the account.
  • Money market accounts or other accounts that limit withdrawals or deposits are not demand deposit accounts.

How demand deposits work

DDA accounts provide the money that consumers need to make a purchase. The funds are accessible at any time. If depositors were to notify their financial institutions before withdrawing funds, depositors would find it difficult to make daily purchases and pay bills. However, the DDA can also signify a direct debit authorization, which is a direct debit from an account for the purchase of a good or service.

Demand deposits are included in M1 money – the most liquid types of money – when measuring money supply.

Special considerations

Demand deposit accounts (DDA) can have co-owners. Both owners must sign when opening the account, but only one owner must sign when closing the account. Each owner can deposit or withdraw funds and sign checks without the authorization of the other owner.

Some banks create minimum balances for demand deposit accounts. Accounts below the minimum value are generally billed whenever the balance falls below the required value. However, many banks now offer no monthly fees and no minimum balances.

Types of demand deposit accounts

As of September 16, 2019, the total amount of demand deposit accounts in the United States was $ 1.42 trillion. That compares to $ 1.1 trillion five years ago and $ 395 billion 10 years ago. The types of DDAs are primarily chequing accounts, but may include savings accounts. This contrasts with term deposits, which have time constraints. Term deposits generally offer higher interest rates than savings accounts. The most common term deposits are certificates of deposit (CD).

Although withdrawn order (NOW) and money market accounts (MMA) allow cardholders to deposit and withdraw funds on demand and generally pay market interest rates, they are not DDA accounts. MMAs generally limit withdrawals or transactions, including deposits, withdrawals and transfers, to six per month. Charges may apply if the limit is exceeded.

Requirements for demand deposits

The main requirements of DDA accounts are not restrictions on withdrawals or transfers, no defined deadline or blocking period, accessible on request and no eligibility requirement.

Banks previously could not pay interest on demand deposit accounts. Federal Reserve Board Q regulations Q, promulgated in 1933, prevented banks from paying interest on current account deposits. This regulation was repealed in 2020.

Many banks now offer chequing accounts with interest. For example, in October 2019, Capital One offered a current account with no minimum and an annual interest rate of 0.20%.

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