Abstract:
Demand deposits comprise assets or funds that the account holder can get to access immediately; they are accessible whenever. The assets and funds in a regular savings account or in a checking account typically comprise demand deposits.
Interestingly, time deposits, also known as term deposits, are not quickly at the record or account holder’s reach. They are reserves or funds that have been saved with the arrangement that they will stay immaculate or remain untouched for a specifically indicated time frame of months or even years. Certificates of deposits (CDs) are a typical kind of time deposit.
Meaning of Demand Deposit:
Demand deposits accounts offer more prominent liquidity and simple entry or ease of access when contrasted with term deposits yet pay lower interest rates, and they may likewise incorporate different expenses for taking care of the record or the account. Contributors or depositors can pull out or withdraw any or every single of the assets or funds in a demand deposit account whenever without a fine or penalty or earlier notification required. Though a few banks charge a little expense on the off chance that you surpass their constraint of the month-to-month withdrawals.
Reserves or funds a contributor or the depositor might have to access whenever should be kept in a demand deposit account. Instances of demand deposit accounts incorporate savings accounts, money market accounts, or regular checking accounts.
Demand deposits and term deposits vary as far as liquidity or terms of accessibility, and in how much interest can be procured on the kept or deposited funds.
Meaning of Term Deposit:
Term deposits, otherwise called time deposits, are investment deposits made for a foreordained period, going from a couple of months to quite a long while. The investor or the deposit gets a foreordained rate of interest on the term deposits over the predetermined period. Reserves or funds deposited for longer periods order a higher interest cost. Term deposit accounts pay a higher rate of revenue or rate of return than customary savings bank accounts.
Reserves or funds can’t be removed from a term deposit account until the termination of the picked period without causing a monetary fine, and withdrawals that regularly require composed notification ahead of time. Toward the termination of the time period, the contributor or the depositor has the decision of pulling out or withdrawing deposits of assets in addition to procured interest or turning over the assets into another term deposit. The most widely recognised type of term deposit is a bank certificate of deposit, also known as a CD.
Difference between Demand Deposit and Term Deposit:
DEMAND DEPOSIT | TERM DEPOSIT |
| Meaning |
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. |
| Time Period |
A demand deposit has no fixed time period for its kind. | There is a fixed time period under term deposits. |
| Rate of Interest |
The rate of interest lies between 4 per cent to 6 per cent in the case of current account and savings bank accounts. | The rate of interest that can be earned under term deposits lies between 7 per cent to 9 per cent. |
| Example |
Whenever the account holder needs to access demand deposits, all he needs is access to ATMs or online banking, where the depositor can withdraw from his respective account. | Since the funds are locked until maturity the depositor can’t access or withdraw from his account and hence having access to ATMs and online banking or credit cards are not needed. |
Conclusion:
Presented by credit unions and by banks, demand deposit accounts permit an individual to deposit to and pull out reserves or funds right away, at whatever point one needs “on-request,” in actuality. The monetary establishment doesn’t need notification ahead of time or charge an expense for allowing you to get to the assets or access the assets, ideal for incessant or regular necessities. Demand deposits, for the most part, appear as checking or saving bank accounts.
The fundamental disadvantage of this is that they offer practically zero revenue in the cash in them. That is the value you pay for the assets being promptly accessible or available.
Term deposits and demand deposits allude to two unique kinds of deposit accounts at a monetary foundation.
Term deposits, otherwise called time deposits, are investment deposits made for a foreordained period, going from a couple of months to a long-term.
Demand deposit accounts offer more prominent liquidity and straightforward entry when contrasted with term deposits.
Also, see:
Banking and Its Types
Important Questions Class 12 Economics Chapter 7
Important Questions Class 12 Economics Chapter 1
Money Creation by Banking System
Limits to Credit Creation and Money Multiplier
Determination of the Exchange Rate
Policy Tools to Control Money Supply
FAQs
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.
What is the difference between a term deposit account and a demand deposit account? ›
Unlike demand deposit accounts, which allow you to take money out at any time, time deposit accounts, also called term deposits, require you to deposit your money for a specific length of time.
What is the difference between deposit and demand deposit? ›
Demand deposits provide the liquidity and flexibility needed for daily financial management, while time deposits offer a path to higher savings over time. Assessing your financial needs and goals will guide you towards the right choice, ensuring your money works effectively for you.
What is the difference between term deposit and deposit? ›
Demand deposits are transactional accounts designed for everyday banking needs, offering immediate access to funds through methods like checks, debit cards, and online transfers. On the other hand, term deposits are savings accounts with fixed durations and higher interest rates.
How do time deposits differ from demand deposits? ›
The key difference between demand deposit vs. time deposit is access. With demand deposit accounts, you generally access your money at any time without paying a penalty or giving the bank any advance notice. With time deposit accounts, you generally can't withdraw money until the account reaches maturity.
What is better than a term deposit? ›
Perhaps the biggest benefit of selecting a savings account over a term deposit is being able to access your savings should you need to, while still earning interest.
What is a demand deposit account? ›
A demand deposit account is another term for a checking, savings or money market account. Money in these accounts is highly liquid, and you'll be able to withdraw funds at any time without paying the bank a penalty.
What is the risk of demand deposit? ›
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.
Why is it called demand deposit? ›
People deposit their savings in banks. They can withdraw their money whenever required. Because the deposits in the bank account can be withdrawn on demand, these deposits are called demand deposits.
What is a term deposit? ›
Term deposits are a type of savings account that lets you invest funds for a specific term at a fixed interest rate. Interest is calculated daily and paid at maturity (for terms up to 12 months), or monthly, quarterly, half-yearly or annually (for terms over 12 months).
Disadvantages of term deposits
To earn interest on your term deposit, your money is locked away for a chosen period of time. If you need your money before the term ends, you may have to pay a penalty fee.
Is your money safe in a term deposit? ›
The deposit terms are usually set between three months to three years, though you can discuss other options with your financial . Term Deposits typically carry less risks than investing in things like the stock market/cryptocurrencies.
Can you keep adding money to a term deposit? ›
When the term deposit matures, you may have the option to add additional funds and roll the funds over for another term, or you may choose to withdraw the money at that point. If you have extra funds to invest, you could consider opening an additional short term deposit account or a high-interest savings account.
What are the advantages of demand deposit? ›
What are the advantages of the Demand Deposit? Demand deposits offer a convenient and flexible way to manage your day-to-day finances and provide peace of mind knowing that your money is safe and accessible when you need it.
What is an example of a demand deposit? ›
Common examples of demand deposits would be amounts in a checking account or savings account. Note that demand deposits are different from term deposits.
What is the interest rate for a demand deposit? ›
Moreover, fixed deposits may incur penalty charges if they are withdrawn before their maturity date. Rate of interest: The interest rate for a demand deposit ranges between 4% and 6%, based on the institution you choose to invest your money in.
What account is called a demand deposit account? ›
A demand deposit account is just a different term for a checking account. The difference between a demand deposit account (or checking account) and a negotiable order of withdrawal account is the amount of notice you need to give to the bank or credit union before making a withdrawal.
Is a call deposit the same as a demand deposit? ›
A call deposit account is like a demand deposit account but comes with the benefit of a term deposit account; one where the money can earn interest whereas it would not on a regular demand deposit account.
Do demand deposits earn interest? ›
Demand deposit accounts can earn interest, and most savings accounts do. Are demand deposit accounts suitable for businesses? Yes, and many banks offer savings and checking accounts that are specifically meant for businesses.
