What is the difference between a checking account, a demand deposit account, and a NOW (negotiable order of withdrawal) account? | Consumer Financial Protection Bureau (2024)

FAQs

What is the difference between a checking account, a demand deposit account, and a NOW (negotiable order of withdrawal) account? | Consumer Financial Protection Bureau? ›

A demand deposit account is just a different term for a checking account. The difference between a demand deposit account (or checking account) and a negotiable order of withdrawal account is the amount of notice you need to give to the bank or credit union before making a withdrawal.

Demand deposits are transactional accounts designed for everyday banking needs, offering immediate access to funds through methods like checks, debit cards, and online transfers. On the other hand, term deposits are savings accounts with fixed durations and higher interest rates.

What Is a Negotiable Order of Withdrawal (NOW) Account? A Negotiable Order of Withdrawal Account is an interest-earning demand deposit account. A customer with such an account is permitted to write drafts against money held on deposit. A Negotiable Order of Withdrawal Account is also known as a "NOW Account."

Unlike demand deposit accounts, which allow you to take money out at any time, time deposit accounts, also called term deposits, require you to deposit your money for a specific length of time.

What Is a Demand Deposit? A demand deposit account (DDA) is a bank account from which deposited funds can be withdrawn at any time, without advance notice. DDA accounts can pay interest on the deposited funds but aren't required to. Checking accounts and savings accounts are common types of DDAs.

A demand deposit account is just a different term for a checking account. The difference between a demand deposit account (or checking account) and a negotiable order of withdrawal account is the amount of notice you need to give to the bank or credit union before making a withdrawal.

After the repeal of Regulation Q, the interest benefit was no longer there, as interest could be paid on checking and demand deposit accounts. Another main difference was that NOW accounts were available for seven-day holding periods, so consumers needed to plan ahead at least seven days for advance notice.

NOW accounts — or negotiable order of withdrawal accounts — were created as a loophole to Great Depression-era banking regulation. NOW accounts offer interest on customer deposits, but require seven days' written notice before customers can make withdrawals.

A demand deposit can be accessed at any time and withdraw any amount of funds without prior notice given to the bank. A term deposit can't be accessed at all until the lock period is served. No withdrawals can be made in term deposits until the date of maturity has arrived.

A person using a checking account can deposit and withdraw money as many times as they want with no limits, which is an example of a demand deposit account. Another demand deposit example can be savings accounts. Although, savings accounts may have a fee attached to withdraws once a person exceeds a withdraw limit.

Can you withdraw money from a demand deposit? ›

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.

You need to pay a penalty to liquidate your investment before maturity. The interest rate for a demand deposit lies between 4 to 6%, depending on the bank you choose to put the money in.

A checking account is also called a demand deposit, because the money may be withdrawn at any time—that is, “on demand.”

A demand deposit can be accessed at any time and withdraw any amount of funds without prior notice given to the bank. A term deposit can't be accessed at all until the lock period is served. No withdrawals can be made in term deposits until the date of maturity has arrived.

A current account is a type of bank account that is used by individuals and businesses to deposit and withdraw money on a daily basis. It is also known as a demand deposit account, which means that the account holder can withdraw money at any time without prior notice.

While demand deposit allows you to withdraw your deposit anytime you want, for fixed deposit there is a lock-in period before you are allowed to make the withdrawal.