Demand deposit

Definition of sight deposit

What is a sight deposit?

A sight deposit account (DDA) is a bank account from which deposited funds can be withdrawn at any time without notice. DDA accounts may pay interest on deposited funds but are not obligated to do so. Checking accounts and savings accounts are common types of DDAs.

Key points to remember

  • Demand deposit accounts allow funds to be withdrawn at any time from the financial institution.
  • Demand deposits provide the money consumers need for cash and for their daily expenses and purchases.
  • Demand deposit accounts earn little or no interest, with the trade-off for funds being so readily available.
  • Demand deposit accounts can have co-owners: each owner can deposit or withdraw funds and sign checks without the permission of the other.
  • Demand deposit accounts contrast with term or term deposit accounts, in which funds are blocked for a certain period of time, inaccessible without penalty, if at all.

How sight deposits work

If depositors were required to notify their banks in advance before withdrawing funds, it would be quite a challenge to get money or do mundane transactions. Demand deposit accounts (DDAs) are meant to provide cash – people need the funds to make a purchase or pay bills. The account’s assets are accessible at any time, without notice to the establishment. The account holder simply goes to the teller or ATM – or, increasingly, goes online – and withdraws the amount they need; as long as the account has that amount, the institution must give it to them. Money is available “on demand”, hence the name “demand deposit” for this type of account.

Demand deposit accounts, which are typically offered by banks and credit unions, contrast with investment accounts offered by brokerage houses and financial services companies. Although the funds can be invested in very liquid assets, the account holder should always inform the institution that he wishes to withdraw the money; Depending on the asset in question, it may take a day or two for the investments to be sold and for cash to be available.

“DDA” can also mean a direct debit authorization, that is to say a withdrawal from an account for the purchase of a good or a service. This is what happens when you use a debit card. But it’s basically the same concept: the money is immediately available, drawn on the linked account, for your use.

Special considerations

Demand deposit accounts (DDAs) can have co-owners. Both owners must sign when opening the account, but only one owner must sign when closing the account. Either owner can deposit or withdraw funds and sign checks without the permission of the other owner.

Some banks create minimum balances for demand deposit accounts. Accounts that fall below the minimum value are usually charged a fee whenever the balance falls below the required value. However, many banks now offer no monthly fees and no minimum balances.

Types of sight deposit accounts (DDA)

DDAs are primarily chequing accounts, but they can also include savings accounts. Money Market Accounts (MMA) are a bit of a gray area: some financial authorities classify them as DDAs, others not (see Demand deposit vs Term deposit below).

Demand deposits make up the bulk of a particular measure of money supply called M1. M1 is equal to the sum of all demand deposits of a nation, plus all currency in circulation. It is a measure of the most liquid types of money in the money supply.

As of March 30, 2021, the total amount of sight deposit accounts in the United States – officially, the total demand deposit component of M1 – was $ 3.76 trillion. This compares to $ 1.1 trillion five years ago and $ 512 billion 10 years ago.


Demand deposit requirements

The main requirements of DDAs are the absence of limitations on withdrawals or transfers, the absence of a deadline or blocking period, funds available on demand and no eligibility conditions.

The payment of interest and the amount of interest on the DDA is the responsibility of the individual institution. In the past, banks could not pay interest on some demand deposit accounts. For example, the Federal Reserve’s Q (Reg Q) regulation, enacted in 1933, specifically prohibited banks from paying interest on current account deposits. (Many banks have bypassed this rule through Negotiable Withdrawal Order (NOW) accounts, checking accounts with a temporary hold period on funds, which allowed them to pay interest.) Reg Q was repealed in 2011.

Still, DDAs tend to pay relatively low interest rates (on savings accounts) without any interest (as is often the case with checking accounts, despite the repeal of Reg Q). They may also charge various fees for managing the account.

Demand deposit vs term deposit

A sight deposit account (DDA) and a term deposit account are two types of financial accounts offered by banks and credit unions. But they differ in terms of affordability or liquidity, and in the amount of interest that can be earned on deposited funds.

Basically, an DDA allows access to funds at any time, while a term deposit account, also known as a term deposit account, restricts access to funds for a predetermined period of time. Funds cannot be withdrawn from a term deposit account until the end of that term without incurring a financial penalty, and withdrawals often require written notice.

The most well-known type of term account is the certificate of deposit (CD). You buy the CD for a specified length or period of time — a number of months or years — and you usually don’t touch it until the term has expired. It is in a special account, remunerated at a fixed rate.

This interest is the second important element which distinguishes sight deposits from term deposits. Term deposits offer interest rates that are generally higher DDAs, much closer to going market rates. Essentially, it’s the trade-off: in exchange for being able to access your funds on demand, your money earns less in an DDA. The term deposit earns more, in compensation for its lack of liquidity.

Where do money market accounts (MMAs) fit into the equation? They are hybrid: they allow account holders to deposit and withdraw funds on demand and they usually pay market interest rates (it fluctuates). However, they’re not as on-demand as traditional demand deposit accounts: MMAs typically limit withdrawals or other transactions (like transfers) to six per month. Charges may apply if the limit is exceeded. For these reasons, some authorities do not consider money market accounts to be true DDAs.

Federal Reserve Regulation D limits MMA holders to a total of six wire transfers and electronic payments (by check or debit card) per month. However, depositors can make an unlimited number of in-person transfers at the bank or at an ATM.

Demand deposit accounts (DDA) faqs

What does DDA mean on a bank statement?

The acronym DDA stands for “demand deposit account,” indicating that the funds in the account (usually a checking account or regular savings account) are available for immediate use, on demand, so to speak. DDA can also mean “direct debit authorization”, meaning a transaction, such as a transfer, cash withdrawal, bill payment, or purchase, which immediately withdraws money from the bank. account.

What is a consumer DDA account?

A consumer DDA is a demand deposit account. Such an account allows you to withdraw funds without having to give notice to the financial institution.

What is the difference between sight deposits and term deposits?

Demand deposits are funds that the account holder can access immediately: they are available at any time. The funds in a current account or an ordinary savings account are generally made up of demand deposits.

In contrast, term deposits, called term deposits, are not immediately available to the account holder. These are funds that have been deposited with the understanding that they will remain intact for a certain specified period of time, months or even years. Certificates of deposit (CDs) are a common type of term deposit.

What are the advantages of sight deposit accounts (DDA)?

With sight deposit accounts (DDAs), your money is entirely at your disposal. You can withdraw the funds in the form of cash or to pay for something (using a debit card or online transfer) at any time without bank advice, penalties or fees.

DDAs are therefore ideal for dealing with daily expenses, making mundane purchases or paying regular bills. They provide the greatest convenience for getting money or transferring funds to another account or another party.

The bottom line

Offered by banks and credit unions, demand deposit accounts allow you to deposit and withdraw funds immediately, whenever you want – “on demand”, in fact. The financial institution cannot require notice or charge a fee for you to access the funds. Ideal for frequent or daily needs. DDAs generally take the form of checking or savings accounts.

The main disadvantage of DDAs is that they offer little or no interest for the money they contain. This is the price to pay for the funds to be readily available.


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