Demand deposits are types of bank accounts that allow for the prompt, fee-free withdrawal of money by the customer. Depending on the region, these accounts are frequently referred to as checking or current accounts. In India, demand deposits are also known as current accounts or savings accounts.
Demand Deposits
Demand Deposits
Businesses and corporations generally utilize current accounts for day-to-day tasks including sending and receiving payments and controlling cash flows. Although there may be a minimum balance requirement, these accounts normally have no restrictions on the volume or dollar amount of transactions.
On the other hand, savings accounts are intended for people and provide a moderate interest rate on the balance held. These accounts have limitations on the quantity and value of transactions, and they might need to maintain a minimum balance. Savings accounts in India also come with a number of perks like debit cards, ATM access, and online banking.
Features of Demand Deposits
Demand refers to the right of the account holder to ask the bank for their money at any moment. In other words, the bank must release the depositor’s funds upon request from the depositor. Demand deposits are a practical choice for handling daily transactions and expenses because they are regarded to be very liquid and may be accessed right away
Time deposits, like certificates of deposit (CDs), on the other hand, have a set term or maturity period, and the depositor is not permitted to withdraw their money without paying a penalty or giving prior notice. Because of the depositor’s longer-term commitment, these deposits have greater interest rates than demand deposits.
Because they offer a consistent supply of capital that may be utilized to support loans and investments, demand deposits are crucial for banks. Demand deposit liquidity risk must be managed by banks, who must make sure they have enough cash on hand to meet withdrawal requests from customers and invest any extra cash to generate interest income.
Demand deposits provide a reliable stream of funds that may be utilized to support loans and investments, making them a significant source of funding for banks overall. Demand deposits are a crucial component of the banking system in India, helping both individuals and companies.
Importance of Demand Deposits
- Secure storage of money: Demand accounts offer a simple and secure way to store cash. Depositors can feel secure knowing that their money is protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a specified level.
- Quick access to money: Demand accounts provide easy access to money, which is crucial in emergency situations. Depositors have access to a variety of withdrawal options from their accounts, including ATMs, online banking, and mobile banking.
- Earning money: Savings accounts also pay interest on deposits, allowing savers to gradually increase their funds. Savings accounts are a desirable alternative for savers because their interest rates are often higher than those of checking accounts.
- Encourages saving: By giving customers a secure and convenient way to store their money, savings accounts encourage people to save money. This is crucial in a nation like India where a large portion of the population lacks access to official financial services
- Encourages financial inclusion: In India, savings accounts are a crucial tool for encouraging financial inclusion. They give users a method to obtain financial services including loans, insurance, and investments as well as engage in the official financial system.
FAQs on Demand Deposits
Q 1. What is a demand deposit?
Answer-
Demand deposit refers to the deposit of money which can be withdrawn without any prior notice.
Q 2. What are demand deposits and time deposits?
Answer-
A demand deposit can be accessed at any time and withdrawn any amount of money without prior notice, while a time deposit can’t be accessed until a certain lock period is served.
Q 3. What is an example of a demand deposit?
Answer-
Common examples of demand deposits include regular checking of accounts, savings accounts, and also money market accounts.