Demand Deposit vs Fixed Deposit - Which one is Better? (2024)

FAQs

Demand Deposit vs Fixed Deposit - Which one is Better? ›

Demand Deposits typically offer lower interest rates than Fixed Deposits, as they prioritise liquidity and accessibility over long-term savings benefits. These accounts often do not have a maturity date and can be held indefinitely, making them suitable for keeping money readily available for immediate use.

A demand deposit can be accessed at any time and withdraw any amount of funds without prior notice given to the bank. A term deposit can't be accessed at all until the lock period is served. No withdrawals can be made in term deposits until the date of maturity has arrived.

Answer: The facility of cheques against demand deposits make it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.

Fixed Deposit Account

If money is deposited in a savings bank account, banks allow a lower rate of interest. Therefore, money is deposited in a fixed deposit account to earn interest at a higher rate. This type of deposit account allows the deposit to be made of an amount for a specified period.

While demand deposit allows you to withdraw your deposit anytime you want, for fixed deposit there is a lock-in period before you are allowed to make the withdrawal.

FDs are often favored over stocks by risk-averse investors due to their stability and guaranteed returns, while stocks carry higher market volatility and uncertainty.

Buying with a 25% deposit

A deposit this size should enable you to access a wider range of mortgages at cheaper rates, assuming you still pass the normal credit and employment checks. Remember that every extra 5% deposit you can save will make a difference to your interest rate.

With demand deposits, the interest rate risk is also manifested in the fact that changing interest rates could also affect customer behavior. For example, increasing market interest rates might lead to customers withdrawing money and seeking more profitable alternatives elsewhere.

The advantages of a demand deposit are as follows: It ensures the safe deposit of funds in your bank account. You can withdraw quick cash to fulfil personal as well as business needs. These accounts are extremely liquid, allowing funds withdrawal anytime without seeking approval or serving any notice.

Summary. Demand deposits are accounts that allow people to withdraw money as and when required. They are important in consumer spending, as the funds typically hold the money used in day-to-day transactions. Common examples of demand deposits would be amounts in a checking or savings account.

Which type of fixed deposit is best? ›

Regular Income Fixed Deposits

If you have a limited income and depend on the interest from bank deposits for your monthly expenses, this type of FD is the best fit for you.

Fixed deposits are an investment scheme that one can use to invest their surplus money and earn interest at a usually higher rate than a savings bank account.

The interest amount earned at the end of maturity of a Fixed Deposit is higher than the interest earned on an RD. The interest amount earned is lesser than the interest earned on an FD. The interest earned on an RD is paid on maturity along with the capital amount.

What Is a Demand Deposit? A demand deposit account (DDA) is a bank account from which deposited funds can be withdrawn at any time, without advance notice. DDA accounts can pay interest on the deposited funds but aren't required to.

You need to pay a penalty to liquidate your investment before maturity. The interest rate for a demand deposit lies between 4 to 6%, depending on the bank you choose to put the money in.

The advantages of a demand deposit are as follows: It ensures the safe deposit of funds in your bank account. You can withdraw quick cash to fulfil personal as well as business needs. These accounts are extremely liquid, allowing funds withdrawal anytime without seeking approval or serving any notice.

While term deposits can be used for this purpose, a high interest savings account allows you instant access to your cash at any time and may offer a better interest rate than a shorter-length term deposit. These are goals you are planning to accomplish within the next one to five years.

Returns: When returns in FD or RD are compared, then FD seems to give higher returns. The reason is that in RD, the account holder deposits monthly and therefore, the interest is also earned accordingly. Usually, the FD amount is deposited once, and is a lump sum that earns a higher interest rate.