What Is a Demand Deposit Account?

A demand deposit account (DDA) is a type of bank account that allows you to access your money easily on demand. This means you don’t have to give your bank prior notice before you withdraw funds.

woman using ATM

Most of us use bank accounts that operate by demand deposits. Demand deposit accounts are ideal for managing everyday expenses and can allow you to pay bills, withdraw cash and spend online.

If you’ve got a standard checking or savings account, then you’re already somewhat familiar with how a demand deposit account (DDA) works.

How do demand deposit accounts work?

DDAs are also known as transaction accounts, distinguishing them from long-term savings accounts, such as certificate of deposit accounts (CDs). Most standard savings and checking accounts are demand deposit accounts.

Demand deposit accounts are designed for regular, immediate spending. They let you withdraw cash whenever you need it. For banks and credit unions, demand deposit accounts are the bread and butter of daily operations.

While demand deposit accounts are a standard, they can also have differences. Depending on the financial institution, a DDA may carry certain features, such as interest on savings, other fees or minimum balance requirements.

Deposits

A DDA can be funded in a few different ways. You can make a simple cash deposit, either with a teller or at an ATM. You can also deposit a check directly with your bank, or through a mobile deposit app, if available.

Furthermore, you can also fund your account by direct deposit, which is an increasingly common way for employees to receive their paycheck.

Withdrawals & Spending

Withdrawing money from a DDA is easy, as these accounts are designed for everyday spending. From ATM withdrawals, point of service transactions, online payments or a paper check, you’ve got plenty of options depending on the situation.

Interest, Fees, and Minimum Balances

Demand deposit account features can vary from bank to bank. For example, some will allow you to earn interest on the money in your account, but many do not.

Some accounts also carry more fees than others. Online banks, however, are well-known for eliminating most of the common fees that traditional banks charge.

Types of Demand Deposit Accounts

There are three common types of demand deposit accounts. These are checking accounts, savings accounts and money market accounts. Let’s take a closer look at each.

Checking Accounts

The most common type of demand deposit account available is a checking account. These accounts are designed for everyday spending, allowing you to have immediate access to your funds via cash, check, or debit card. Most checking accounts come with basic monthly fees, overdraft fees, and potentially others, depending on your bank and account status.

There are also many different kinds of checking accounts available. Some are specific to certain demographics, such as senior checking accounts or student checking accounts.

In any case, a checking account allows you easy and instant access to your money. The downside is, they rarely allow you to earn interest on your deposits.

Savings Accounts

Next to checking accounts, savings accounts are another common type of DDA. While savings accounts might have a limit on the number of withdrawals made per month, usually the funds in a savings account can still be accessed on demand.

The key difference is that savings accounts typically earn some interest on deposits. The amount of interest earned depends on the bank, bank account and value held in deposit. While they are considered demand deposit accounts, savings accounts are not as accessible as checking accounts, and can come with penalties if you withdraw funds from them too often.

Read about the best high-yield online savings accounts here.

Money Market Accounts

A money market account (MMA) is an interest-bearing deposit account at a bank or credit union. They are also known as money market deposit accounts (MMDA).

MMAs are relatively uncommon compared to checking and savings accounts. However, for many consumers, they are an attractive blend between the two. Money market accounts offer the convenience of having your money readily available for withdrawal, while also earning interest.

Often interest rates on a money market account are better than those available for regular savings accounts, but that will depend on current market interest rates. Keep in mind that you may need to have a sizable deposit value to access the best rates available.

Time Deposit Accounts

While most basic bank accounts are demand accounts, there are other account types to be aware of.

Time deposit accounts, which are also known as term deposit accounts, require you to keep your money in the account for a predetermined period of time. The benefit of a time deposit account is that they can accrue interest at rates higher than a typical savings account.

When your deposit account reaches the end of the agreed upon term, or time period, then you can withdraw your money. You’ll also have access to the interest earned. The most common example of a time deposit account is a certificate of deposit, or CD.

Depending on your bank, you may have access to several types of time deposit accounts.

NOW Accounts

Negotiable Order of Withdrawal (NOW) accounts require you to give your bank advance notice before making a withdrawal. NOW accounts are rare these days, as demand deposit accounts have essentially made them obsolete.

With a NOW account, for example, a bank may require you to request a withdrawal in writing anywhere from two to five working days in advance. These accounts were established to get around an old depression-era banking regulation known as Regulation Q, which prevented banks from paying interest on checking accounts.

Since Regulation Q was repealed in 2011, NOW accounts are somewhat redundant.

Demand Deposit Fees

Most demand deposit accounts have a range of fees associated with them. Depending on the bank or financial institution you sign up with, you may be able to avoid certain fees.

Some common examples of demand deposit account fees are:

  • Monthly maintenance fees
  • Overdraft fees
  • Fees for using out of network ATMs
  • Minimum account balance fees

While fees have come to be considered normal for most banks, online banks actually offer low or even no-fee accounts. Online banks differ from traditional financial institutions, primarily in that they have no overhead costs like a brick and mortar bank does. That’s why they are able to offer checking and savings accounts with fewer fees.

Finding the right type of bank and bank account for you will depend on your own unique financial situation. If avoiding fees is important, then you’re more likely to find such an account online.

DDA fees at regular banks are not always high, but if you can eliminate extra expenses while still having access to a DDA, it’s worth considering.

Pros and Cons of Demand Deposit Accounts

If you’re not sure about whether a demand deposit account is right for you, it might help to compare the advantages and disadvantages. Here’s a look at the pros and cons of demand deposits:

Pros

  • Quick and easy access to funds.
  • Your account is insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration for accounts in credit unions.
  • Access to savings, and some checking accounts, that pay interest.

Cons

  • Liable to fees such as overdraft fees, monthly maintenance fees, and others.
  • May need to meet a minimum balance requirement.
  • Savings accounts typically have a limited number of withdrawal transactions per month. 

Frequently Asked Questions

What is a demand deposit account?

A demand deposit account is just another name for a regular checking account, as well as the normal savings and money market accounts with which we’re familiar. Demand deposit is the category of bank account which these accounts fall under.

Demand deposit accounts are those which allow the account holder instant access to cash via ATM withdrawals, debit card purchases and more.

The primary alternative is time deposit accounts, which work by locking your funds away for an agreed upon period to benefit from better savings rates. A checking account will always be a demand deposit account, but when it comes to saving, sometimes time deposit accounts are more attractive.

Are demand deposit accounts FDIC insured?

Yes. Typically, all types of demand deposit accounts come with FDIC insurance. However, when considering signing up for a new bank account, always double check that the financial institution is FDIC insured.

How do you open a demand deposit account?

Since most bank accounts are demand deposit accounts, most will already be familiar with opening one. In addition to meeting the bank’s minimum requirements to open an account, you’ll need to provide all personal information, including ID and a Social Security Number.

When looking for a new demand deposit checking account, make sure to compare the following details:

  • Fees, including maintenance and overdraft charges.
  • Minimum balance requirements.
  • Branch locations and ATM access.
  • Mobile and online banking services.
  • Security and FDIC insurance.
  • Rewards, interest, or other bonuses.

Do demand deposit accounts pay interest?

Some demand deposit accounts do pay interest. Savings accounts typically do so, and even certain checking accounts will also offer a small annual percentage yield. However, the best interest rates are generally found with time deposit accounts, such as CDs.

Steven Brennan
Meet the author

Steven Brennan is a freelance writer specializing in finance and cryptocurrency. He has an MA in Literature from Maynooth University in Ireland, and lives in the Pacific Northwest with his wife and young daughter.