Where to Put Your Cash: Call Deposit vs Time Deposit Accounts

In simpler terms, it offers immediate access to deposited funds, making it highly liquid. Savings accounts typically do so, and even certain checking accounts will also offer a small annual percentage yield. However, the best interest rates are generally found with time deposit accounts, such as CDs.

Term deposits offer interest rates that are generally higher than DDAs’—much closer to prevailing market rates. Demand deposit accounts hold money that you can withdraw whenever you want. You can use this account to get cash, pay bills, make purchases, or complete other financial transactions.

Money Market Accounts

1. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator.
2. Demand deposits and term deposits differ in terms of accessibility or liquidity, and in the amount of interest that can be earned on the deposited funds.
3. Think of a money market account as a checking and savings hybrid account.
4. Money enters and exits your financial setup, usually through a checking account, and can be safely stored long-term in a savings account.
5. While demand deposit accounts are a standard, they can also have differences.
6. If you go over this limit, your bank may charge a fee or convert your savings account into a checking account.

But before worrying about those, ensure you have demand deposit accounts that suit your needs. Savings accounts are also highly liquid, but many limit you to six monthly transactions. This is an artifact of a now-defunct rule called Regulation D that previously mandated this limitation. You can withdraw as much as you want at a time and deposit funds at any time with no limits. Because they’re intended for longer-term savings, banks often pay higher interest rates for savings accounts than checking accounts. A checking account is one of the most common types of demand deposit accounts.

Can I Make a Deposit Using a Check From Another Bank?

We do not endorse the third-party or guarantee the accuracy of this third-party information. The beauty of a time deposit is that they’re among the surest things in all of personal finance. Hidden costs are virtually nonexistent, happening only in the rarest of cases. The fundamental disadvantage of this is that they offer practically zero revenue in the cash in them.

A deposit in finance is typically when you transfer money to a bank account like a checking account for safekeeping. For example, you may need to place a deposit, or a certain amount of money, with a business to secure goods or services such as for a rental. This means that, at fixed intervals, a small percentage of the account’s total is added to the amount of money already in the account. Interest can compound at different rates and frequencies, depending on the terms of the bank.

On the other hand, time deposits lock your money for a set period, offering potentially higher interest rates. Demand deposits consist of funds the account holder can access right away, such as checking account funds. In contrast, time deposits or term deposits are locked up for a certain period of time, such as certificates of deposit (CDs). For your everyday spending, bill paying and paycheck deposits, a demand deposit account, specifically a checking account, is almost always the right choice.

Types of Demand Deposit Accounts

Since banks make money by making loans, the more money they have on deposit, the more loans they can make. For banks, offering a slightly higher interest rate in return for a more stable cash flow makes sense. Non-transaction deposits may also be referred to as time deposits or term deposits. Some banks may place certain restrictions on transaction deposits and accounts. A bank may put a partial or full hold on large or unusual deposits for a certain period of time. This may be the case for a customer who deposits a large difference between demand deposits and time deposits check to their account that needs to be verified before the funds are released.

In Canada, for example, they are called term deposits; in Ireland, fixed-term accounts, and in the United Kingdom, savings bonds. Banks have been marketing these types of accounts for years, often calling them Checking Plus or Advantage Accounts. It’s an attempt to offer the consumer the best of both worlds—easy access plus higher interest than they would get with a regular checking or savings account. Funds in a checking account are examples of transaction deposits because they can be used for daily expenses or may be withdrawn from an account by the holder of the account. In contrast, time-based deposits, such as a CD, are examples of non-transaction deposits because they cannot be transferred or withdrawn at a moment’s notice. It also includes transfers when making purchases and those by check or debit card.

What Does DDA Mean on a Bank Statement?

Funds cannot be withdrawn from a term deposit account until the end of the chosen period without incurring a financial penalty, and withdrawals typically require prior written notice. At the end of the term, the depositor has the option to withdraw the principal amount along with the accrued interest or to renew the deposit for another term. The most common type of term deposit is a bank certificate of deposit, also known as a CD.

Demand deposit accounts are ideal for managing everyday expenses and can allow you to pay bills, withdraw cash and spend online. When choosing between a demand deposit vs. time deposit, consider your risk tolerance. Demand deposits offer immediate access to your funds but typically carry lower interest rates. This aligns well with those seeking easy accessibility and prioritising liquidity over high returns.

In contrast, a time deposit is a deposit account where the funds are held for a fixed term, typically ranging from a few months to several years. The account holder cannot withdraw the funds before the maturity date without incurring a penalty. NOW accounts are essentially checking accounts where you earn interest on the money you have deposited. With a NOW account, the bank or credit union has the right to require at least seven days written notice of a withdrawal, though this is rarely done.