What Is a Demand Deposit Account? | Hydrogen Blog
What is a Demand Deposit Account?

What is a Demand Deposit Account?

In today’s world, having instant access to your finances is important. Whether you are paying bills or making a store purchase, having your money readily available to you whenever you need it is a necessity. If you’re considering offering some kind of a card account to your employees or customers, a demand deposit account may be the best option for your company’s needs. Learn more about demand deposit accounts and how they can benefit your business.

What Are Demand Deposit Accounts?

You may be wondering what DDA means in banking. Demand deposit accounts (DDAs) are a flexible form of banking that allows for various transactions like other checking or debit accounts. Similar kinds of accounts, such as time deposit accounts and negotiable order of withdrawal (NOW) accounts, do not offer the convenience of DDAs.

Time deposit accounts require you to keep your funds in the account for a set amount of time before making a withdrawal. Likewise, NOWaccounts require that you notify the bank about a withdrawal before it can be made. A DDA account allows you to access your funds as you need without prior authorization or a set timeline.

Several different kinds of DDA banking accounts exist, such as checking accounts, shared draft accounts, and savings accounts. A checking account is the most popular and widely used form of a DDA. Here are some examples of demand deposit accounts:

  • Senior checking
  • Rewards checking
  • Interest checking
  • Student checking
  • Checkless checking
  • Money market accounts

Demand deposit accounts can pay interest on deposited funds, although not every account does. Typically, DDAs pay little to no interest at all. Interest is more common with savings accounts than checking accounts. DDAs can also have joint owners, allowing either owner to deposit and withdraw funds without the authorization of the other. This is helpful for people who wish to combine their incomes in one account.

How Does It Work?

Banks and credit unions generally offer demand deposit accounts, but more companies in the financial tech (fintech) industry are offering DDAs to their customers. One of the most popular benefits of DDAs is that account holders have immediate access to their money. With a DDA, funds are available any time you need them, which is what makes these accounts “on-demand.”

When you remove money from your DDA, this withdrawal is referred to as demand deposit debit. When you add money to your DDA, this transaction is known as a demand deposit credit.

In some instances, making a purchase with a debit card requires a direct debit authorization, which places the funds on hold until the transaction has been fully authorized as complete. However, this hold does not affect the overall workings of your demand deposit account.

Opening a DDA is very similar to opening a checking account. Along with providing your personal information, you generally need to make a minimum deposit in the amount required by the sponsor bank. To get the best account for your customers, take time to understand certain details that can vary from bank to bank, including: 

  • Monthly maintenance fees
  • Overdraft charges or other usage fees
  • Minimum balance requirements
  • Access to branches and ATMs
  • Accessibility to mobile and online banking 
  • Security features
  • Extra incentives, such as interest or rewards

Types of DDAs

The key determining factors of demand deposit accounts are no limitations on withdrawals or transfers of funds, no maturity period, no eligibility requirements, and instant access to finances. As noted earlier, the most commonly used types of demand deposit accounts are traditional checking accounts and savings accounts.

Checking accounts typically allow account holders to access their funds using multiple methods, including check, debit card, or electronic transactions. Depending on the sponsor bank, account holders may also be able to make transactions for withdrawal or deposit in person at the bank. ATMs provide a convenient way to withdraw cash.

Savings accounts are considered DDAs because account holders can withdraw funds without bank authorization. However, the law limits the number of withdrawals to six per month. The Federal Reserve has allowed financial institutions to suspend such limits for emergencies during certain circumstances, such as the COVID-19 pandemic. Although waiving the limit may be permitted in these cases, not all financial institutions are required to do so. It is important to verify any such changes with your sponsor bank.

Benefits of Demand Deposit Accounts

If you want to provide your customers with accounts that are reliable, provide instant accessibility, and have few to no limitations, a DDA could be right for your company. Many people prefer to open demand deposit accounts for their many benefits, including:

  • Easy access to cash withdrawals through in-person banking or ATM use
  • Safe storage of funds protected with insurance from the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA)
  • The opportunity to grow funds if the account pays interest on balances
  • No prior authorization from financial institutions to access funds
  • Combining incomes with a joint account, which is ideal for married couples

Demand deposit accounts are popular for the various ways account holders can make payments and receive funds. With DDAs, account holders can easily manage withdrawals and deposits for daily activities like:

  • Paying online bills
  • Using a linked debit card to make a purchase
  • Electronically sending money to family and friends
  • Transferring funds between link accounts
  • Setting up direct deposits to receive payments from employers
  • Initializing automatic payment arrangements, such as for utilities or subscriptions

Overall, demand deposit accounts provide convenience and flexibility to manage finances in a way that best suits you and your needs. 

Benefits of Hydrogen Debit Cards

Hydrogen debit cards provide many of the benefits of checking accounts without any underlying costs or regulatory compliance that typically accompany banking products. Hydrogen’s goal is to provide any company with the ability to offer trusted and reliable financial services to its customers or employees.

Enabled as DDAs, our debit cards have their own account number and routing number. These numbers mean you can fund debit cards directly from cardholders’ paychecks. Additionally, Hydrogen debit cards are protected by FDIC insurance to $250,000. Hydrogen debit cardholders can have peace of mind knowing their funds are safe if a sponsor bank fails.

Learn more about how Hydrogen can help your company establish its own financial services by signing up today and getting started for free.


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