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A demand deposit account (DDA) is a bank account that lets you access your money at any time without notifying the bank or credit union in advance. Checking accounts are the most common type of demand deposit account, and other examples include savings accounts and money market accounts. In contrast to demand deposit accounts, time deposit accounts such as certificates of deposits (CDs) require leaving your money untouched for a certain period.
What Is a Demand Deposit Account?
A demand deposit account is a bank account that allows you to access your money on demand. The most widely used demand deposit accounts are checking accounts, which are designed for day-to-day transactions such as paying bills, making purchases, getting cash from an ATM or accepting deposits.
Savings accounts and money market accounts can also be DDAs, but typically have more restrictions than checking accounts. For example, the number of transactions you can make per month without paying a fee may be limited.
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Types of Demand Deposit Accounts
Checking accounts, savings accounts and money market accounts are all demand deposit accounts.
Checking Accounts
Demand deposit accounts are generally checking accounts. These accounts are designed for daily transactions, like paying bills or buying groceries, where you need unrestricted access to your money. It would be very impractical if you had to notify your bank in advance before swiping your debit card to buy your morning cup of coffee, for example.
Savings Accounts
Savings accounts are also demand deposit accounts. However, since savings accounts are intended for growing your money, not spending it, banks typically make it a little harder to get to your funds. For instance, you can pay bills directly from your savings account, but it's more complicated than paying from your checking account, and generally not recommended. In addition, some banks restrict savings account transfers to six transactions per month and charge fees if you exceed that limit.
Money Market Accounts
Money market accounts are demand deposit accounts that combine features of checking and savings accounts. They earn interest (usually at a higher rate than traditional savings accounts) and typically let you write a certain number of checks or perform a certain number of debit card transactions each month. You can pay bills or make purchases more easily with a money market account than with a savings account. As with savings accounts, however, money market accounts may charge fees if you exceed the bank's limits on the number of transactions per month.
Learn more >> How to Choose a Bank Account
How Does a Demand Deposit Account Work?
You can open a demand deposit account at traditional banks, online-only banks and credit unions and use it to deposit or withdraw money at any time. People use DDAs to:
- Deposit cash or checks
- Accept direct deposit of paychecks, government benefits or tax refunds
- Make debit card purchases
- Write checks
- Withdraw cash at a bank or ATM
- Pay bills online
- Set up automatic payments
- Transfer funds to linked accounts
- Send money via peer-to-peer payment, wire transfer or ACH transfer
The trade-off for ease of access is that demand deposit accounts typically earn low or no interest compared to timed deposit accounts. Many checking accounts don't earn any interest. As of November 2024, average annual percentage yields (APYs) were 0.08% for interest-bearing checking accounts, 0.43% for traditional savings accounts and 0.60% for money market accounts, according to the Federal Deposit Insurance Corp. (FDIC). All earned significantly less than the average interest rates on most CDs.
Demand Deposit vs. Time Deposit
Key differences between demand deposits and time deposits include the following:
| Demand Deposit Account | Time Deposit Account |
|---|---|
| No maturity date | Set maturity date |
| Can withdraw funds at any time (incurring a fee in some cases) | Accessing funds before maturity date results in penalty |
| Lower APY | Higher APY |
| Convenient options for accessing funds | Accessing funds is more complicated |
Here's how those differences can impact your savings, rate of return and money management:
- Maturity dates: Demand deposit accounts have no maturity date, which means you can withdraw your money at any point without notifying the bank in advance. Time deposit accounts have a set maturity date. You're meant to leave your money in the time deposit account until it matures; then you can access your initial deposit and any interest earned.
- Interest rates: In exchange for locking up your money in a time deposit account, you'll generally earn a higher APY than you would with a demand deposit account. As of November 2024, the average APY on a 12-month CD was 1.84%, according to the FDIC—substantially higher than the average APYs for demand deposit accounts.
- Penalties: You may be charged a fee if you exceed the number of free transactions your bank allows for a savings or money market account. If you take money out of a time deposit account before maturity, you'll face a penalty that could equal 18 months of interest earnings or more.
- Access to funds: Getting money out of your demand deposit account is easy. You can typically access funds by using your debit card for purchases, visiting an ATM to get cash, paying bills online or writing checks. Withdrawing money from a time deposit account can be more complicated. To get money out of a CD, for instance, you might need to speak to a bank representative by phone or in person, wait for the withdrawal to be processed and wait to get a check in the mail.
Benefits of Demand Deposit Accounts
Demand deposit accounts have many benefits, including:
- Easy access to your money: Make withdrawals or transfer money whenever you want via ATM, in person, online or in the bank's mobile app.
- Safety and security: Demand deposit accounts held with a bank insured by the Federal Deposit Insurance Corp. (FDIC) or a credit union insured by the National Credit Union Administration (NCUA) are safe places for your money.
- Ability to deposit funds: You can deposit cash in person or via ATM, set up direct deposit of your paycheck or government benefits, or deposit checks in person, via ATM or by using the bank's mobile app.
- Simplifies bill paying: Easily pay your bills online, in the bank's mobile app or by check.
- Convenient purchasing options: Use your checking account to make daily purchases.
- Easily link to other accounts: Connect your demand deposit accounts to other bank accounts or peer-to-peer payment accounts to transfer funds from one account to another.
- May earn interest: Some demand deposit accounts earn interest.
How to Open a Demand Deposit Account
To open a demand deposit account, follow these steps.
- Research your options. You can get a checking account at traditional banks, online banks or credit unions. Think about what's important to you, such as how many locations or ATMs the bank has, the features of its online and mobile app, and the other services the bank offers. Also consider minimum balance requirements and any fees involved in the account, such as ATM fees, overdraft fees or check fees. Finally, look for a bank that's insured by the FDIC or a credit union insured by the NCUA. The FDIC and NCUA insure you for up to $250,000 per account holder, per account type and ownership category, so your money is safe even if the financial institution fails.
- Gather the necessary documents. Check the bank's website for specifics, but typically, you'll need:
- Government-issued photo identification (such as a driver's license, state identification card or passport)
- Your Social Security number
- Proof of residence (such as a utility bill or mortgage statement with your name on it)
- Fill out an application. You can generally apply for a checking account online or by visiting the bank. In addition to the documents above, you'll be asked for:
- Your name
- Your birth date
- Your contact information
- Make your initial deposit. Some checking accounts require a minimum initial deposit, typically $25 to $100; others don't. You can usually deposit funds using cash, check or a transfer from another bank account. If you choose a bank transfer, you'll need your bank account number and bank routing number.
Learn more >> Tips to Choose the Best Checking Account
The Bottom Line
Demand deposit accounts don't directly affect your credit score. Because they aren't credit accounts, these accounts aren't reported to the consumer credit bureaus and don't show up on your credit report. However, unpaid bank fees can negatively impact your credit score if the bank sends your account to a collection agency.
If you're thinking about opening a new checking account, the Experian Smart Money™ Digital Checking Account & Debit Card can help you build credit without debt by automatically linking to Experian Boost®ø, which gives you credit for eligible bill payments after three months of payments. You'll also pay no monthly fees¶ for Experian Smart Money, have access to more than 55,000 fee-free ATMs worldwide** and could receive your paychecks up to two days early when you enroll in direct deposit†. You can get an Experian Smart Money Account through a free or paid Experian membership, which also gives you access to your FICO® Score☉ , Experian credit report and more. See terms at experian.com/legal.