What are Demand Deposit Accounts (DDAs)? | Hydrogen Blog
What are Demand Deposit Accounts (DDAs)?

What are Demand Deposit Accounts (DDAs)?

If you have been presented with the option to open a Demand Deposit Account, but you are unsure what that is, this post will provide you with all the information you’ll need to know. While the acronym and the name might sound complicated, Demand Deposit Accounts (DDAs) are pretty straightforward and easy to understand.

A DDA is any type of bank account that allows you to access your money, at any moment, or without advanced notice. This means that you don’t need to notify the bank/financial institution or go through any bureaucratic process such as notice to withdraw it. 

While this sounds simple enough, knowing when and what type of DDA to use can be a bit more complicated.

This post will provide you with what a Demand Deposit Account is, what types exist, and its pros/cons when compared to other types of accounts.

Demand Deposit Accounts 101

As we said before, DDAs are accounts that grant you immediate access to your funds. These are accounts most people are familiar with as they eliminate the need to carry cash via cards, transfers, and checks. This is why you will often see these accounts being offered as “on-demand” accounts.

While checking accounts are sometimes considered to be the same as a Demand Deposit Account, that is not entirely accurate. This is because DDA is a broader category than checking accounts, meaning that every checking account is a DDA but not every DDA is a checking account. That being said, checking accounts are the most common type of DDA.

Now, not all bank accounts are DDAs.  There are other types of accounts such as Time Deposit Accounts and Negotiable Order of Withdrawal (NOW).

NOW accounts are a special type of account that requires you to notify the bank prior to a withdrawal. While they often offer higher interest rates, you will need to contact your bank a number of days prior to making a withdrawal, sometimes in writing.

A Time Deposit is also an interest bearing account that has a pre-set date for when it matures. The best example of a time deposit account is a certificate of deposit or CD. This is where the money remains in an account for a set amount of time so that it can earn interest.

Demand Deposit Accounts offer a more versatile and accessible solution than NOW and Time Deposit Accounts, which is why they are the most common. As technology has advanced, NOW accounts have become pretty rare, while Time Deposit Accounts are often used by people looking for specific benefits.

What Types of Demand Deposit Accounts Exist?

There are several types of Demand Deposit Accounts you can opt for, with new offerings being created on a regular basis. It is also important to note that DDAs and other types of accounts are not limited to traditional banking but also exist for crypto, forex, and other assets.

That being said, we will be limiting ourselves to the most common types of DDAs.

Checking Account

The most common type of DDA, Checking Accounts, is well known by most people. This financial tool allows its owner to make transactions in a variety of ways ranging from depositing checks to making payments. If you are planning to hold money in the short or medium term, this might be the type of account for you.

When getting a checking account you will often receive a checkbook and debit card, which will allow you to use your money at any time without prior notice to the issuer. As they are meant for the short to medium term, checking accounts will have a lower interest rate than other account types. Higher maintenance and overdraft fees may also be expected.

There are different types of checking accounts, such as:

  • Traditional/Premium Checking Account
  • Rewards Checking Account
  • Interest-Bearing Checking Account
  • Second Chance Checking Account

All of these types will be different in terms of fees, services, interest rates, bonuses, and requirements. 

Savings Account

As the name suggests, this type of DDA is meant for those looking to save their money. This typically means that the interest rates will be higher than checking accounts, in exchange for some of the versatility.

Prior to 2020, the Federal Reserve limited the number of withdrawals for saving accounts to 6 each month. 

While this was adjusted with a change to the regulation, many banks have continued to enforce this limit, while others modified it. This means you should expect limitations and/or additional fees after a certain number of withdrawals.

In addition to withdrawal limitations, most saving accounts will require a minimum deposit when creating them. Other conditions might include agreeing to leave your money for a certain period before withdrawing it. While you will be able to use the money on demand as most saving accounts are DDAs, you are likely to incur fees.

Share Draft Accounts

This type of account is typically offered by credit unions, which means that you are likely to have never heard of them unless you either considered joining or have joined a credit union. 

Share Draft Accounts are pretty much the same as checking accounts but had their name changed to better reflect the nature of your agreement with the financial entity: you are a shareholder, not a client.

One of the benefits of Share Draft Accounts over checking accounts is that while they operate as Checking Accounts in terms of availability, they also offer dividends (interests). This makes them a type of account that moves between Checking and Saving accounts.

Money Market Account

Just like Saving and Share Draft Accounts, Money Market Accounts are interest-bearing accounts that bring all the benefits of DDAs. This type of account will usually offer higher interest rates than Savings Accounts but at an even higher cost in terms of flexibility.

Unlike other DDAs, Money Market Accounts will often require you to maintain a minimum balance or incur fees. In addition to this, your checking and debit card privileges will be even more limited, which means they are really not an option for the short or mid-term.

Now, these drawbacks are the result of these accounts providing federal insurance protection as well as interest rates that other types of accounts can’t match.

DDAs with Hydrogen

Demand Deposit Accounts are a great way to handle your everyday financial needs. Not only do they offer great flexibility when it comes to how to use your money but they also are easily accessible.

With Hydrogen Deposit, we offer orchestrated ACH deposits and DDAs with automated payroll switching. 

Our platform supports various use cases for companies that want to offer deposits to their own employees/contractors or tech platforms that want to enable third parties. 

Contact us today to learn more.


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