At its core, Demand Deposit is a type of bank account from which funds can be withdrawn at any time without any need to notify the bank in advance. It sharply contrasts with Term Deposits, which lock your money away for a predetermined period. There are two forms of demand deposits: Savings Account and Current Account.
The beauty of a Demand Deposit lies in its simplicity and flexibility. It allows you to access your money whenever you need it, making it an essential component of personal and business financial management.
How do Demand Deposits work?
Demand Deposits work on a simple principle: deposit money into your account and withdraw it whenever you like, without penalties or waiting periods.
Imagine you have a Savings Account with Axis Bank. You deposit your salary into this account at the beginning of the month. Unlike Term Deposits, which might lock funds away for a certain period, your Demand Deposit account keeps the money readily accessible.
Now, you decide to pay your monthly bills, buy groceries, or even splurge on a new book. You can do all these transactions directly from your Demand Deposit account. This is possible through various means:
1. Debit Card: You use it at the grocery store to pay directly from your account.
2. Online Banking: You log in to your bank’s website or app to transfer money for your bills.
3. Cheques: Less common for daily use today but still an option for payments from your account.
4. ATM Withdrawals: You withdraw cash for times when digital payment isn't an option.
The process behind each transaction is straightforward. When you make a payment or withdraw funds, the bank deducts the amount from your account balance instantly. There’s no need to inform the bank or wait for approval for these transactions; your funds are available on demand, hence the term "Demand Deposit."
Interest may be earned on the balances maintained, depending on your Demand Deposit account type. Savings Accounts are interest bearing accounts, however the interest rates are typically lower than those of Term Deposit accounts, reflecting the trade-off between accessibility and return on your money. Current Accounts, on the other hand, are non-interest bearing.
Difference between Demand Deposit and Term Deposit
The key distinctions between Demand Deposits and Term Deposits lie in their accessibility, interest rates, and intended use:
- Accessibility: Demand Deposits shine with their immediate access feature. You can withdraw or transfer funds without waiting periods or penalties. On the other hand, Term Deposits are locked for a predetermined period, and accessing funds before the term ends often incurs penalties.
- Interest Rates: Term Deposits generally offer higher interest rates than Demand Deposits. The commitment to keep money in the bank for a set term allows banks to offer this higher rate.
- Intended Use: Demand Deposits are ideal for daily transactions and managing short-term financial needs, providing a convenient way to pay bills, make purchases, and handle emergency expenses. Term Deposits are better suited for long-term savings goals, where you can set aside funds for a future date without the need for immediate access and earn a higher interest rate over time.
Also Read: 7 Different types of fixed deposit in banking
Conclusion
The appeal of Demand Deposits lies in their power to give you immediate access to your money, fostering financial agility in everyday life. For those seeking a more strategic approach to saving, Axis Bank offers Auto Fixed Deposits, seamlessly converting your existing Savings Account funds into a Fixed Deposit when your balance surpasses ₹25,000—marrying convenience with smart savings.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
