What is a demand deposit account (DDA)?

Checking accounts are DDAs as they usually give you access to your funds on demand

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Demand deposit accounts (DDAs) are the most common type of bank account. Many people don’t realize it, but a checking account is a DDA. The reason for its name is that the bank is required to allow you to withdraw or transfer your funds on demand or with no more than six days’ written notice.

Most of the time, banks allow you to access funds from your checking account immediately. However, if you read your account agreement, you may discover the bank can reserve the right to require written notice — although this can be no more than six days.


Key insights

The terms “demand deposit account” and “checking account” are synonymous.

Jump to insight

With a DDA, a bank must allow you to withdraw or transfer funds from your account on demand or with no more than six days’ written notice.

Jump to insight

Savings accounts, money market accounts (MMAs) and certificates of deposits (CDs) are not demand deposit accounts.

Jump to insight

What does demand deposit mean?

“Demand deposit account” is another term for a checking account. It’s called a demand deposit account because banks must let you withdraw or transfer money from your account on demand or with no more than six days’ written notice. The specific time frame will be outlined in your bank account agreement.

Unlike with DDAs, banks can reserve the right to require seven days’ or more written notice of your intent to withdraw or transfer money from savings accounts, MMAs, NOW (negotiable order or withdrawal) accounts and CDs.

Although banks usually don’t exercise these rights, the potential to always access your funds on demand with a DDA is a key differentiator between this account and others.

» MORE: Money market vs. CD: Which is right for you?

What you can use a DDA for

You likely already use a DDA every day for shopping, paying bills and receiving your paycheck.

  • Everyday transactions: Deposit and withdraw money for regular expenses, such as groceries, bills and other everyday purchases. Many DDAs provide account holders with checks or a debit card.
  • Bill payments: Set up automatic payments for recurring bills, ensuring that you never miss due dates. Additionally, many banks offer bill pay services, allowing you to schedule payments directly from your DDA to various service providers.
  • Direct deposits: Employers often use DDAs for salary payments through direct deposit, eliminating the need for physical paychecks.

“I have had my banking account at [my bank] for over 4 years. … I do all my bills over bill pay on their website and during financially tight months around holidays, they honor my debit card charges even when it causes a negative balance,” said ConsumerAffairs reviewer Chris from California. “I use any ATM for cash withdrawals and they refund all ATM fees within the same month.”

What shouldn’t you use a DDA for?

DDAs are primarily designed for transactions, so they’re not an ideal place to store emergency funds or long-term savings. While some DDAs offer interest on deposits, these are usually lower than what savings accounts may provide.

DDAs also don’t provide direct investment opportunities. If you want to invest in stocks, bonds or other securities, you need to consider a brokerage or investment account.

DDAs vs. nontransaction accounts

A key feature of a DDA is that you can conduct unlimited transactions each month. Conversely, savings accounts, MMAs and CDs are all nontransaction accounts, which means banks can limit the number of monthly transactions you can conduct. These accounts are intended to help you save money rather than facilitate transactions.

Before April 2020, Federal Reserve Regulation D required banks to allow no more than six convenient transfers or withdrawals a month from savings accounts and MMAs. If an account holder routinely exceeded these limits, the account could be converted to a DDA. However, this is no longer the case.

Banks are no longer required to place transaction limits on savings accounts and MMAs, but they can do so at their own discretion. If you exceed the limits, your account might be converted into a DDA.

» LEARN MORE: CDs vs. savings accounts: Which is right for you?

DDA vs. time deposit account

A time deposit account is a bank account with a maturity date of at least seven days from when you deposit funds into the account. Unlike time deposit accounts, DDAs don’t have a maturity date. The most common time deposit account is a CD.

Andrew Haehn, a commercial portfolio manager with Pinnacle Bank, explained, “Term deposit accounts cannot be accessed at will before the end of a predetermined amount of time, which can range from weeks to years.”

Another key differentiator is that early withdrawal penalties are applied to time deposit accounts. You won’t ever be charged an early withdrawal penalty for a DDA.

“Closing or withdrawing early from [time deposit] accounts can result in a loss of accrued interest or a financial penalty, and sometimes can require an advanced written notice prior to receiving the funds,” Haehn explained.

Banks must impose early withdrawal penalties of at least seven days’ simple interest on money you withdraw from a time deposit account within:

  • Six days of your initial deposit
  • Six days of your most recent deposit

Banks have considerable discretion over the penalties they charge. Carefully read your bank account agreement to understand what penalties may apply.

» MORE: 5 things to know before opening a certificate of deposit

DDA vs. NOW account

A NOW account is similar to a DDA, except you earn interest on your deposits with a NOW account, whereas you can have either an interest-bearing or a non-interest-bearing DDA. With both accounts, you can write checks and process unlimited transactions.

Leslie Tayne, a financial attorney, explained: “A NOW account is basically a checking account that is guaranteed to [earn] interest. … NOW accounts are rare these days, as they were created to circumvent old banking regulations that no longer exist.”

The key differentiator between a DDA and a NOW account is that the bank reserves the right to require you to provide seven days' written notice of intended withdrawals or transfers from a NOW account. (In practice, most banks pay withdrawals on demand for a NOW account.)

FAQ

Do you earn interest on a demand deposit account?

DDAs are simply checking accounts, which can be either interest-bearing or non-interest-bearing. If you open an interest-bearing checking account, you’ll earn interest on the money you place in the account.

» LEARN MORE: Interest rates and how they work

Is your money safe in a demand deposit account?

Yes, your money is safe in DDAs held with FDIC-insured banks or NCUA-insured credit unions. Deposit accounts like DDAs (i.e., checking accounts) as well as savings accounts, MMAs and CDs are covered by federal deposit insurance that protects you if the financial institution fails.

However, this type of account can be vulnerable to fraud if your debit card or account number is compromised.

Is a demand deposit account better than a time deposit account?

Since DDAs and time deposit accounts each have a different purpose, you need to consider how your funds will be used to decide which is better.

If you need routine access to your funds to process transactions (e.g., pay bills, deposit checks), a checking account is better. Conversely, if you want to save money for a fixed period and don’t need to access the funds, a CD is better because you’ll typically earn more interest.

What is Regulation D?

Regulation D is a rule established by the Federal Reserve that sets requirements for how financial institutions manage the money you hold in deposit accounts. It also defines and classifies transaction accounts and non-transaction accounts.

While Regulation D used to limit the number of transfers or withdrawals you could make from a non-transaction account each month, this rule was suspended on April 24, 2020. Banks can now set their own limits or entirely eliminate these types of limits.

Bottom line

A DDA is simply another term for a checking account. It’s called this because you may be allowed to withdraw or transfer funds from your account on demand or with no more than six days’ written notice to the bank. DDAs differ from savings accounts and MMAs, for which banks reserve the right to require at least seven days’ written notice.

Banks usually allow withdrawals or transfers on demand for DDAs, savings accounts and MMAs. However, if you read the fine print in your account agreement, you’ll find the bank reserves the right to treat withdrawals differently for these accounts.

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Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Board of Governors of the Federal Reserve System, “Data Dictionary: Item Number 2210 - Total Demand Deposits.” Accessed March 14, 2023.
  2. Board of Governors of the Federal Reserve System, “Consumer Affairs Letters - "CA 21-6: Suspension of Regulation D Examination Procedures.” Accessed March 14, 2023.
  3. Consumer Financial Protection Bureau, “What Is the Difference Between a Checking Account, a Demand Deposit Account, and a NOW (Negotiable Order or Withdrawal) Account?” Accessed March 14, 2023.
  4. Federal Deposit Insurance Corporation, “Resources - Deposit Insurance.” Accessed March 14, 2023.
  5. Federal Reserve Board, “Consumer Compliance Handbook: Regulation D - Reserve Requirements.” Accessed March 14, 2023.
  6. Federal Reserve Board, “Consumer Compliance Handbook: Regulations Q and D - Interest on Demand Deposits/Reserve Requirements.” Accessed March 14, 2023.
  7. National Credit Union Administration, “Deposits Are Safe in Federally Insured Credit Unions.” Accessed March 14, 2023.
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