What is a demand deposit account (DDA)?

A demand deposit account, or DDA, is a type of bank account that you can withdraw from on demand. The most common types of DDAs are checking and savings accounts, but money market accounts are also considered payable on demand. Learn about some of the key benefits and drawbacks of demand deposit accounts, how they work and how to open one. 

What is a demand deposit account (DDA)?

A demand deposit account is a type of bank account that provides 24/7 access to your money. 

“[They] hold liquid, readily available funds that can be used to make purchases, pay bills or pretty much perform any transfer or transaction needed,” said Ohan Kayikchyan, a certified financial planner and economist. 

Some demand accounts, like checking accounts, allow you to withdraw your funds on demand with no penalties. But others have a few limitations. For instance, some savings accounts limit you to six transactions per month and if you go over, you may have to pay a fee—and even run the risk of having your account closed.

Money market accounts may require six or fewer days’ advance notice before you make a withdrawal. Some demand deposit accounts earn interest, although the rate is often minimal.

One type of DDA requires more advance notice. A “negotiable order of withdrawal,” or NOW, account is a checking account that pays interest on the money deposited. The financial institution can require at least seven days’ written notice in order to withdraw funds, though this is rare. 

How a DDA works

You may already be familiar with how a DDA works if you use a bank account to handle your day-to-day transactions. Financial institutions usually offer many types of demand accounts with different features. For instance, a bank or credit union may offer interest-bearing checking, rewards checking, student checking and high-yield savings, among others. 

“[Each financial institution sets] different rules, features and benefits for their DDA accounts,” Kayikchyan said. “That includes the interest paid if any, the minimum balance requirements, and the fees associated with the account maintenance.”

The key benefit: Once you open the account and deposit money, you can use the money at any time. So, for instance, you may be able to: 

• Deposit money online, in person or at ATMs.
• Receive direct deposits.
• Withdraw money at retail locations, branches and ATMs.
• Pay bills online or with paper checks.
• Make purchases using a debit card.
• Electronically send money to people you know.
• Transfer money between linked accounts.
• Earn interest on your balance in some cases.

Depending on the account type and the financial institution, you may be able to have joint ownership on the account. Both owners will need to open the account together and will receive the same privileges when using the account.

Some banks set minimum balance requirements for demand deposit accounts. Fall below the minimum and you’ll typically owe a fee, typically  around $15 per month. 

Pros and cons of a demand deposit account

Demand deposit accounts let you withdraw money on demand, “provided you have the sum in your account with the institution,” said Lyle Solomon, a debt attorney and personal finance expert. However, “DDAs are not designed for long-term investment, (so) your options for growing money are limited.”

Here are some of the main pros and cons of demand deposit accounts. 

PROS	CONS
High liquidity and convenience. The money in your demand account is available whenever you need it. Plus, demand accounts come with convenient features like electronic transfers, fee-free direct deposits and the ability to use checks and debit cards.	Lower interest rates. If a demand deposit account pays interest, it’s usually less than what you’d find with a term deposit account.
Deposit insurance. If your financial institution is insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA), then money in your deposit account is automatically federally insured. There’s a limit of $250,000 per account holder, per account type at each insured institution.	Minimum balance requirements. You might have to keep a certain amount of money in your demand account to avoid a monthly fee.
Interest payments. Some savings accounts pay interest on your balance, while checking accounts may pay interest or provide rewards every time you use the connected debit card.	Withdrawal limits. While you may be able to withdraw from your savings or money market account anytime, the financial institution may restrict the number of withdrawals per month.

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What you need for a demand deposit account

To set up a demand deposit account, compare your options at multiple banks and credit unions. Some financial institutions offer special checking and savings accounts for teens, college students and seniors, while others provide rewards or waive fees. Check whether the accounts come with:

• Monthly fees. 
• Other fees, such as ATM fees.
• An opening balance requirement. 
• A minimum balance requirement. 
• Interest payments. 
• An easy-to-use website and app.
• FDIC or NCUA insurance. 
• Customer service options that fit your needs.

Once you’ve chosen the financial institution and the account, Kayikchyan says you’ll usually need to provide the following:

• Basic personal information. This includes your full name, address, date of birth, citizenship status, email address and telephone number.
• Two forms of identification. The primary identification must be a government-issued photo ID, while the secondary ID can usually be your Social Security card or any debit or credit card from another institution. 
• Opening deposit. Some accounts require a minimum deposit, which is “usually $25 to $100, depending on the financial institution,” Kayikchyan said.  

• Proof of address. A bank may require a piece of mail that proves your address, such as a utility bill, bank statement or cell phone bill.

Demand deposit vs. term deposit

The main difference between demand deposit vs. term deposit accounts is how easily you can access your money. While you can withdraw from a demand deposit account either immediately or within a few days, term deposit accounts are designed to hold your money for a certain period of time. 

A certificate of deposit (CD) is one example of a term deposit account. Terms usually range from as little as 28 days to as long as 10 years, and the account comes with a guaranteed fixed rate. There’s typically a penalty if you withdraw from the account before the term ends. But while you lose some liquidity, term deposit accounts often pay higher yields than demand deposit accounts. 

Both types of accounts come with FDIC or NCUA coverage.

Frequently asked questions (FAQs)