Question

Define demand deposit.

Hint:

A demand deposit allows easy and quick access to funds, making it ideal for transactions that require immediate liquidity.

Answer 1

A demand deposit is a type of bank account from which funds can be withdrawn at any time without any prior notice. These deposits are highly liquid and are typically used for daily transactions. The most common examples of demand deposits are checking accounts or current accounts.
Step 1: Characteristics of Demand Deposit.
- No Withdrawal Restrictions: Funds in a demand deposit can be withdrawn at any time by the account holder without any penalty or advance notice.
- Check or Debit Facilities: Demand deposits often come with the option to write checks or use debit cards for transactions.
- No Interest: Generally, demand deposits do not earn interest or offer minimal interest compared to savings accounts.

Step 2: Use of Demand Deposit.
Demand deposits are primarily used by individuals and businesses for everyday transactions. The ease of withdrawal and the lack of restrictions make them a convenient choice for holding money for daily expenses.