demand deposit

Banking Terms -> demand deposit

• Demand deposit is a term which refers to an account in which money has been deposited and can be withdrawn without notifying the depository entity and at any time. With this type of account, persons can withdraw their money whenever required. This is the opposite to a term deposit which is not to be freely accessed over a specified period of time. Most savings and checking accounts represent demand deposit, with funds being accessible by account holders. Checking accounts are among the most common accounts that work on the demand deposit principle. Money can be withdrawn immediately after it has been posted to the checking account.
  
  Bank money in the form of demand deposits is held in commercial banks. It is the larger part of the money supply in states, with account balances of demand deposits being money. Money supply includes demand deposits and currency. Deposited money can be used to various purposes, such as payment for services and products, settling debts, etc.
  
  During periods of financial crisis, depositors withdraw their money which results in a reduced money supply. The opposite is true for periods of stability and growth.
  
  In general, depositors can withdraw their money without making a special arrangement with their credit union or bank. Withdrawals can take place if the balance is sufficient and the procedures of the bank are followed. Depending on the regulations of the financial institution, some exceptions may exist, as is the case with demand deposits including financial instruments that have not cleared before the money is released. Restrictions may also apply to checks by foreign financial institutions. Electronic funds transfer is a kind of demand deposit which is available for withdrawal within minutes. Electronic funds transfers are bank-to-bank transfers, which are pre-qualified by the sending institution. In many cases, receiving banks immediately post the funds. Electronic transfers of this type allow recipients to withdraw the full amount just minutes after the money has been posted.
  
  In general, withdrawals can be made in several ways. One way to do that is to present a check that is written, with money deposited in the bank account. The financial institution then checks the available balance and if money is sufficient, the check is being cashed for the client. Using a debit card is another way to withdraw money from a demand deposit. Some restrictions may apply, for example, there may be a limit on the amount that can be withdrawn within a 24-hour period. A third way to withdraw money is by transferring it from one account to another. Sometimes demand deposits are made into checking accounts. Clients may decide to transfer some or all of the money into a savings account. This can be done online, by phone, or at the local branch of one’s bank.
  
  Basically, any account from which funds can be withdrawn on demand is a demand deposit. Money market accounts fall into this category. In contrast, certificates of deposit do not allow accountholders to withdraw their money until maturity. If money is withdrawn before that, the holder risks incurring fees and interest penalties. Money market accounts and savings accounts are both demand deposits, despite of some differences. They both pay interest on the money you have deposited. Money market funds and banks impose restrictions on withdrawals, and a minimum balance should be maintained. A charge of $5 usually applies if you fall below this minimum. Accountholders can make certain number of withdrawals free-of-charge and once they reach the limit, a fee applies.
  
  In general, demand deposits are quite useful. With the help of online tools, accountholders can monitor transactions, transfer money and schedule payments as a way of managing their money.

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