What Is a Demand Deposit Account (DDA)?

Article Summary

A demand deposit account is a type of bank account that allows the account holder to access their funds without having to notify their bank or credit union. The most common example of a DDA is a checking account, although there are other types as well. Demand deposit accounts are best for those who need to access their funds regularly and on demand rather than holding them for a set amount of time.

Demand deposit accounts are specifically designed to allow you to access your funds wherever and whenever you need to. They make it easy to pay for that spontaneous purchase and even for monthly bills like rent and utilities. In fact, if you use a debit card to pay for purchases, you most likely already have your own demand deposit account.

Keep reading to learn what qualifies as a DDA, the benefits of having one, and the pros and cons of using a demand deposit account.

What is a demand deposit account (DDA)?

A demand deposit account (DDA) is a type of bank account that allows you to access your money on demand and without advance notice. The type of DDA you’re probably most familiar with is a checking account.

In general, most people use their DDAs to pay for items regularly. So monthly rent, bills, groceries, and fun money are often covered through a person’s DDA.

How you can use a DDA

  1. Withdraw money from an ATM or bank branch
  2. Make automatic payments
  3. Pay bills online
  4. Transfer funds to another bank account
  5. Send money to someone else
  6. Everyday spending

How do demand deposit accounts work?

DDAs are designed to let the account holder withdraw and use their money at any time. The Federal Reserve calls DDAs transaction accounts, as they let the account holder operate transactions freely.

Here’s a list of the basic functions of a demand deposit account:

  • Depositing money. Money can be deposited into your DDA through a physical or mobile check, direct deposits, or cash deposit at a bank or ATM. You are free to use the available funds whenever you need to.
  • Interest rates. Depending on who your DDA is through, you may be able to earn interest on your account. This option, however, is not offered everywhere.
  • Fees. Some DDAs require you to pay maintenance fees, out-of-network ATM fees, or other types of fees.
  • Minimum balances. Some, but not all, DDAs require account holders to maintain a minimum balance in their account. You may have to pay a fee if you do not maintain this balance.
  • Withdrawing funds. You can withdraw money from your account through a card, ATM withdrawal, check, or online bill pay.

Types of demand deposit accounts

Though we’ve talked about checking accounts, they’re not the only DDA available to use. Both money market accounts and savings accounts are also considered DDAs. Here’s a rundown of each to help you better understand what they are and why they’re considered a DDA.

Checking accounts

As we noted, a checking account is probably the type of DDA you’re most familiar with. Traditional checking accounts hold your funds and transfer the money as you spend it. You can spend money in your checking account through a debit card, check, or cash withdrawal.

Checking accounts are the most common form of DDAs for a reason: They make paying for living expenses extremely easy. So if you don’t already have one, take some time to review what each bank or credit union has to offer.

Related reading: Check out our list of the best checking accounts and learn more about the process of opening a checking account.

Savings accounts

Savings accounts are technically DDAs, as you can withdraw funds without giving your bank notice. But there are a few hold-ups to savings accounts that may not make them your primary account of choice.

First, some banks only allow you to withdraw money up to a certain amount of times (perhaps six times) a month. So while you don’t need to provide advance notice to withdraw funds, the amount you can take out will likely be limited. Second, many savings accounts have a minimum required balance, so you have to ensure that you maintain that balance. However, one of the benefits of a savings account over a checking account is that you’re more likely to earn interest on the funds.

If you’d rather not worry about maintaining a minimum balance, take a look at the savings accounts below, all of which have no minimum requirements.

Pro Tip

While you may not be able to link debit cards to your savings accounts, you can still access these funds through a money transfer, cash withdrawal, or cashier’s check.

Money market accounts

Money market accounts essentially combine a checking account with a savings account. With money market accounts, you can earn interest on deposits, use a debit card to make purchases or withdraw money, and access funds through a check. But, like a savings account, some financial institutions may only let you withdraw money up to six times each month.

Something to note about money market accounts: Not all financial institutions recognize these as DDAs. Though we’re categorizing them as a DDA in this article, keep in mind that your financial institution of choice may disagree.

Demand deposit accounts vs. other deposit accounts

There are other types of deposit accounts available to use, but not all deposit accounts are demand deposit accounts. Let’s review a few other deposit accounts you may run into when researching which account to open.

NOW account

Negotiable order of withdrawal (NOW) accounts are basically checking accounts that allow you to earn interest on deposited money. What makes NOW accounts different from DDAs is that many financial institutions require advance notice before withdrawing money. A NOW account is not recommended for those who have to make regular purchases.

Time deposit account

Time deposit accounts, also referred to as term deposit accounts, require the account holder to leave their money untouched in the account for a set amount of time. You receive interest in exchange for doing this. Financial institutions that don’t consider money market accounts a DDA typically consider them a term deposit account instead.

The most well-known type of time deposit account is a certificate of deposit (CD). CDs allow you to set aside a lump sum of money for a set amount of time. You gain interest on these funds while leaving them untouched.

Pros and cons of demand deposit accounts

Now that we have an idea of what demand deposit accounts are, let’s review why you may want one and what caveats to consider.


Here are some benefits and drawbacks of DDAs.

  • It’s easy to access funds. Perhaps the biggest reason to have a DDA is to have quick and easy access to your funds. DDAs make it possible to access your money through an ATM, debit card, written check, and more. If you need to pay for something in a hurry, you can do so with a DDA.
  • You can earn interest. Not all DDAs earn interest, but it is possible to do so. You can look around and compare financial institutions to find one that offers interest on their DDAs.
  • FDIC-insured accounts. Most DDAs are covered by FDIC insurance. This means that if your bank were to fail for some reason, your money would be protected up to a certain dollar amount.
  • Low interest rates. Most banks do not pay interest on DDAs, and those that do may not offer high-interest rates. So if you’re looking for a way to build interest, look into a time deposit, high-interest savings accounts, or some form of investment.
  • Fees. Depending on what kind of DDA account you get and who you get it through, you could end up having to pay fees, such as monthly maintenance fees.
  • Minimum balances. Additionally, some banks require a certain amount of money to be in your account. This means you likely won’t be able to withdraw all your money, as some needs to stay in the account to meet the minimum balance requirement.

Is a demand deposit account right for me?

Demand deposit accounts are for those looking for a way to access their money quickly and regularly. Demand deposit accounts allow you to pay for frequent expenses (such as groceries, rent, and bills) without having to give your bank or credit union a heads-up. However, you likely won’t earn much interest through your demand deposit account.

So if you’re looking for an account that will build interest, look into investing in time deposit accounts such as a CD or high-interest savings accounts. You can also look into investing in stocks or bonds. These methods are better suited for those who want to earn interest and already have a reliable way to pay for everyday expenses.


Is a demand deposit account a checking account or a savings account?

Both checking and savings accounts are considered DDAs, as you can access those funds without having to give your bank or credit union advance notice. The difference between the two is you’re usually paid interest with a savings account, while that isn’t as common for a checking account.

What is the difference between a demand deposit and a time deposit?

You can access your funds instantly with a demand deposit account. You cannot access money in a time deposit account without having to pay a fee or give your bank or credit union notice about the money withdrawal.

Key Takeaways

  • A demand deposit account is a type of bank account that allows the account holder to access their funds without having to notify their bank or credit union.
  • Checking accounts are the most common and well-known type of demand deposit account.
  • Other demand deposit accounts include money market accounts and savings accounts.
  • Demand deposit accounts are best for those who need to access their funds regularly and on demand, not for those looking to build interest or make investments.
View Article Sources
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