# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Demand Deposit

Written By
Paul Tracy
Updated August 12, 2020

What is a Demand Deposit?

A demand deposit is an account with a bank or other financial institution that allows the depositor to withdraw his or her funds from the account without warning or with less than seven days' notice. Demand deposits are a key component of the M1 money supply calculated by the Federal Reserve.

How Does a Demand Deposit Work?

Checking accounts are an example of demand deposits. They allow the depositor to withdraw funds at any time, and there is no limit to the number of transactions a depositor can conduct with these accounts (although a bank may charge a fee for each transaction).

Unlike other types of retail financial accounts, Federal Reserve Regulation Q prohibits banks and financial institutions from paying interest on demand deposits. However, merchandise, credit and cash payments to a depositor are allowed if they are paid when the depositor opens the account, the institution does not give the depositor more than two payments a year, and the value of each is not more than $10 for deposits of less than $5,000 and $20 for deposits of more than $5,000.

Why Does a Demand Deposit Matter?

Demand deposits are important to consumers because they often house the funds to pay day-to-day expenses. Without the ability to obtain funds on demand, depositors would not be able to make any purchases without first telling the bank.

The amount of demand deposits an institution has often dictates all or part of the reserves it must keep on hand either in vault cash or on deposit with the Federal Reserve; the more dollars an institution has in demand deposits, the more dollars it must keep in reserves.

Ask an Expert about Demand Deposit
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Demand Deposit.
Be the first to ask a question

If you have a question about Demand Deposit, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Demand Deposit, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Demand Deposit

By submitting this form you agree with our Privacy Policy

Share
close
Don't Know a Financial Term?
Search our library of 4,000+ terms