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A sight deposit account (DDA) is a type of bank account that allows access to your money without notice. In other words, money can be withdrawn from an DDA on demand and as needed.
These accounts are particularly useful for managing daily expenses, paying bills, or withdrawing money. A checking account is the best example of a demand deposit account in action.
An DDA is not the only type of account that banks can offer, however. There are also term deposit accounts and negotiable withdrawal order (NOW) accounts. Understanding how each one works is important in deciding where to keep your money.
What is a sight deposit account?
Demand deposit accounts are what they sound like: accounts that allow you to access your money whenever you want. A good analogy for DDAs is streaming services that allow you to watch movies or TV shows on demand from your home, tablet, or mobile device. You can access the media you want whenever you want. Demand deposit accounts allow you to do the same with your money.
These accounts can allow different types of transactions. A DDA deposit, for example, is a transaction in which money is added to a demand deposit account – this can also be referred to as DDA credit. Demand deposit debits are transactions in which money is withdrawn from the account.
There are different types of demand deposit accounts that banks can offer. The two most common options are:
There are different types of current accounts that can be considered as DDAs. For example, banks may offer senior verification, rewards verification, interest verification, student verification, or even a check-free verification, all of which provide immediate access to your money.
Money market accounts are sometimes included as part of sight deposits, although some banks characterize them more as term deposit accounts.
How sight deposits work
If you have a checking account, you already know how a current deposit account works.
For example, you can use your checking account to:
- Pay bills online
- Make purchases using a linked debit card
- Withdraw money at a branch or at an ATM
- Send money to friends and family electronically
- Transfer funds between linked accounts
- Initiate direct deposits or direct debits
These are things you can do on a daily basis. So, using your money when you need it is one of the main advantages of demand deposit accounts.
In particular, the abbreviation DDA is also used for “automatic debit authorization”. This is used for transactions involving debit cards. For example, if you buy something online or in a store with your debit card, that is a direct debit authorization. But that doesn’t change the fundamental nature of your checking account; it is still a demand deposit account.
Demand deposit accounts can be sole-owned or jointly owned. For example, if you are married, you might have individual chequing accounts in your name, a joint checking account, and a joint savings account. Banks generally do not limit the number of demand deposit accounts you can have. You should, however, be aware of how the FDIC’s insurance protection limits apply when you have multiple accounts at the same bank.
Banks can pay interest on demand deposit accounts, however, with checking accounts this is usually not the norm. Instead, you are more likely to earn interest on a savings account. This includes traditional savings accounts at traditional banks, as well as high yield savings accounts offered by online banks. In between, online banks tend to offer better rates for savers because they usually have lower overhead costs.
Demand deposit account vs time deposit account
Bank accounts are not all the same and it is important to note how demand deposit accounts differ from term deposit accounts. Also called term accounts, term accounts require that you keep money in the account for a specified period of time. In return, the bank pays you interest.
Once your deposit account matures at the specified time, you can withdraw the money you originally deposited, along with any interest earned. The most common example of a term account is a certificate of deposit (CD). With CDs, you can usually choose between terms as short as 28 days or as long as 10 years, depending on what your bank or credit union offers.
Saving money on a CD is something you can consider if you want to earn interest on money that you don’t think you need in the short term. CDs are generally considered safe investments: you can’t lose money unless you withdraw your savings early. In the event that you withdraw your money before the CD maturity date, your bank or credit union may charge an early withdrawal penalty, which may be equal to some or all of the interest earned.
Money Market Accounts (MMA) can sometimes be considered term deposits, depending on the restrictions that banks place on them. A money market account basically combines the features of a checking account and a savings account into one.
For example, money market accounts can:
- Earn interest on deposits
- Provide check writing skills
- Come with a debit card for purchases or ATM access
- Limit yourself to six withdrawals per month
Between CDs and money market accounts, MMAs can offer more flexibility. You may be able to write a check, withdraw money from an ATM, or transfer funds from a money market account to a savings or checking account online within minutes.
But banks can limit the number of withdrawals you can make from an MMA, just as they can with savings accounts. For example, you may be limited to six withdrawals per month before excess withdrawal fees apply. As to whether CDs or money market accounts pay better interest rates, it may depend on the type of CD or MMA and where you open. he.
For example, generally, the longer the duration of the CD, the higher the rate. Jumbo CDs, which may require a deposit of $ 25,000 or more, may earn higher rates than CDs that only require a deposit of $ 500 or $ 1,000. The same goes for jumbo money market accounts compared to regular money market accounts. And again, online banks generally offer lower rates for CDs and MMAs than physical banks.
Current deposit accounts vs NOW accounts
NOW accounts require that you give the bank advance notice before making a withdrawal. For example, your bank may ask you to request a withdrawal in writing seven days before you plan to do so. While banks don’t always enforce this rule with NOW accounts, it’s important to know that it exists.
Checking accounts can be a negotiable order of withdrawal accounts, although it is a good idea to choose a NOW account as your primary verification option may depend on how you use it. If you regularly make purchases, withdrawals, or pay bills, a NOW account can be inconvenient if you need to give the bank a week’s notice before you dip into your funds.
How to open a sight deposit account
Opening a sight deposit account essentially means opening a current account. You will need to meet the bank’s minimum requirements to open an account, including providing your personal information and making your initial deposit.
When comparing current checking accounts, pay attention to:
- Monthly maintenance fees
- Other fees, such as overdraft fees
- Minimum balance required
- Branch and ATM access
- Mobile and online banking access and functionality
- Security functions
Also, determine if the bank offers additional incentives, such as interest on checks or rewards for debit card purchases. These types of features could serve as a tiebreaker if you get stuck trying to choose between two different checking accounts.