Now What Is a Demand Deposit? I am going to tell you about what this is. A demand deposit account (DDA) is simply one type of bank account that simply offers access to your money without even requiring advance notice. In other words, cash can simply be withdrawn from a DDA on demand and as needed.
These accounts are also very useful for managing everyday spending, paying bills or withdrawing cash. A checking account is also one of the best instances of a demand deposit account in action.
A DDA is not the only type of account banks can offer, however. There are also time deposit accounts and also negotiable order of withdrawal (NOW) accounts. Understanding how each of them works is important when deciding where to keep your money.
What Is a Demand Deposit?
Demand deposit accounts are simply what they sound like: they are accounts that simply let you to access your money when you want to. A good analogy for DDAs is streaming services that also allow you to watch movies or TV shows on demand from your home, tablet or mobile device. You can even get access to the media you want when you want it. Demand deposit accounts let you to do the same with your money.
These accounts can allow different types of transactions. A DDA deposit, for instance, is a transaction in which money is been added to a demand deposit account, now this might also be referred to as a DDA credit. Demand deposit debits are simply transactions in which money is taken out of the account.
There are also different types of demand deposit accounts that the banks can offer. The two most common options are:
- Checking accounts and share draft accounts (the term credit unions use for checking accounts).
- Savings accounts.
There are different types of checking accounts which can even be considered DDAs. For instance, banks might even offer you senior checking, rewards checking, interest checking, student checking or even checkless checking, all of which provide immediate access to your money. Money market accounts are even included under the demand deposit accounts umbrella.
How Demand Deposits Work
If you have a checking account, then you are already having experience with how a demand deposit account works.
For instance, you might even use your checking account to:
- Pay bills online.
- Make purchases using a linked debit card.
- Withdraw cash at a branch or ATM.
- Send money to friends and family electronically.
- Transfer funds between linked accounts.
- Initiate direct deposits or automatic debits.
These are also things you might do daily. So, when using your money when you need to is one of the key benefits of demand deposit accounts.
The abbreviation DDA is also simply used for “direct debit authorization.” This is also used for transactions involving debit cards. For instance, if you want to buy something online or in a store using your debit card, that is a direct debit authorization. But this does not change the fundamental nature of your checking account; it is still a demand deposit account.
Demand deposit accounts can even be single ownership or joint. For instance, if you are married, you may then have individual checking accounts in your name, a joint checking account and also a joint savings account. Banks generally do not limit the number of demand deposit accounts you can have. You should, however, take note of how FDIC insurance protection limits apply when you have multiple accounts at the same bank.
Banks also can pay interest on demand deposit accounts, though, with the checking accounts, this typically is not the norm. Instead, you are even more likely to earn interest on a savings account. This includes the traditional savings accounts at brick-and-mortar banks, as well as high-yield savings accounts provided by online banks. Between the two, the online banks tend to offer better rates to savers, as they normally have lower overhead costs.
Demand Deposit Account vs. Time Deposit Account
Bank accounts are not all alike and it is very important for you to note how demand deposit accounts differ from time deposit accounts. Also referred to as term deposit accounts, time deposit accounts simply require you to keep your money in the account for a set period of time. In return, the bank will then pay you interest for doing so.
Once your deposit account then reaches maturity after the specified term that was required of you, you can withdraw the money you deposited initially, alongside with interest earned. The most common example of a time deposit account is a certificate of deposit (CD). With the CDs, you can even choose between terms as short as 28 days or as long as 10 years, simply depending on what your bank or credit union offers.
Saving money in a CD is something that you might consider if you want to get or make interest on money that you do not think you will need in the near term. CDs are generally considered safe investments; you cannot lose money unless you withdraw your savings early. In the case when you then withdraw your money before the CD’s maturity date, your bank or credit union might then charge an early withdrawal penalty, which can be equivalent to some or all of the interest earned.
Money market accounts (MMAs) are a form of demand deposit. A money market account necessarily combines features of a checking account and also a savings account into one.
For instance, money market accounts can:
- Earn interest on deposits.
- Offer check-writing capabilities.
- Come with a debit card for purchases or ATM access.
- Limit you to six withdrawals per month.
Between the CDs and money market accounts, MMAs can even provide more flexibility. You might be able to write a check, withdraw money at the ATM or be able to transfer funds from a money market account to a savings or checking account online in minutes.
But the banks can limit the number of withdrawals that you can make from an MMA, just as they can with savings accounts. For example, you can even be restricted to six withdrawals per month before an excess withdrawal fee kicks in. In terms of whether CDs or the money market accounts pay better interest rates, this can then depend on the type of CD or MMA and where you are opening it.
For example, typically, the longer the CD term is, the higher the rate. Jumbo CDs, which can then require you to deposit an amount of $25,000 or more, can make higher rates than CDs that only require an amount of $500 or $1,000 deposit. The same goes for jumbo money market accounts versus regular money market accounts. And again, the online banks generally offer more favorable rates for both CDs and the MMAs than brick-and-mortar banks do.
How to Open a Demand Deposit Account
Opening a demand deposit account necessarily just means opening a checking account. You will then need to meet the bank’s minimum requirements to be able to open an account, including providing your personal information and making your initial deposit.
When comparing demand deposit checking accounts, pay attention to:
- Monthly maintenance fees.
- Other fees, such as overdraft charges.
- Minimum balance requirements.
- Branch and ATM access.
- Mobile and online banking access and features.
- Security features.
Also, you should consider whether the bank offers any extra incentives, such as interest on checking or rewards for debit card purchases. Those kinds of features can simply even act as a tiebreaker if you are stuck trying to choose between two different checking accounts.
What Does DDA Mean on a Bank Statement?
The acronym DDA simply stands for “demand deposit account,” which is then indicating that funds in the account (usually a checking or regular savings account) are then available for immediate use—on-demand, so to speak. DDA can even also stand for “direct debit authorization,” meaning a transaction, such as a transfer, cash withdrawal, bill payment, or purchase, which has immediately been subtracted money from the account.
What Is a Consumer DDA Account?
A consumer DDA is just a demand deposit account. Such type of an account allows you to withdraw funds without having to give the financial institution any advance notice. You can see how beneficial this Consumer DDA is for the users.
What Is the Difference Between Demand Deposits and Time Deposits?
Demand deposits consist of funds the account holder can then get access to right away, such as checking account funds. In contrast, time deposits or term deposits are simply locked for a certain period of time, such as certificates of deposit (CDs).
What Are the Advantages of Demand Deposit Accounts?
With the demand deposit accounts, the funds are simply always readily available. You can even then withdraw the funds in form of the cash or to pay for something (using a debit card or online transfer) at any time, without simply giving the bank notice or incurring a penalty, or paying fees. They even provide the utmost convenience for getting cash or transferring funds to another account or another party.