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Demand deposit account are peculiar. Demand deposits are those deposits kept with the banker on the condition that they may be withdrawn anytime.
Understanding Demand Deposit Account
These are deposits kept with a bank by the depositor or transferred by him to some other person(s) without previous notice to the bank at any time during banking hours.
The money which is referred to as loan is designed to be repaid whenever the customer demands for it or calls for the money.
Since it is repayable on call, it is also referred to as call deposit, and since it is repayable and the balance on it is always currently due to repayments.
It is also called current account. This type of account is normally maintained by a business man and woman, company executives, and others who will need to enjoy the use of cheque in making payments.
Advantages of Cheques on Demand Deposit Account
The use of cheques has several advantages. Here are a few numbers of benefits or advantages.
- It is a safe way to transfer bulk amount of money
- It reduces risk of money loss from robbery
- Even if a cheque is lost, the money is relatively safe.
- It is more convenient to pay by cheques
- Apart from reducing the cost of transferring or transporting cash, the drawer does not need to worry about forgery since the bank will be held liable.
- Cheque payments have also come to become an image symbol.
- Cheque enhances people’s image in the public
How Demand Deposit Accounts Work?
Demand deposit account or current is the principal type of account maintained by the banks for their customers.
The major feature of this type of account is that money is normally withdrawn from it by the use of demand bill of exchange called cheque.
It is only on this type of account that cheques are used to make withdrawals.
A cheque book is normally issued to customers when an account is opened. He is also issued a pay in slip for making deposits.
This account distinguishes commercial banks from others.
Most of the daily operations of commercial bank branch revolve on the operation of demand deposit accounts.
On daily basis, they receive customers deposits, pay their cheques, sends cheques for clearing, collects cheques for customers, updates customers ledgers, maintain standing orders and transfer funds.
These are mainly done for current account holders.
Interest On Demand Deposit Accounts
It is normal that money held in demand deposit does not attracts any interest. This is the position in many countries.
Banks have technically avoided the payments of interest on demand deposits by setting conditions such as a given amount of minimum balance on which such interest maybe paid, and reducing the rate of interest.
For this reason, when they pay interest at all, it is always very minimal.
Keeping of demand deposits which are withdraw-able by cheques are regarded as a privilege serve to customers for which they are required to pay some commission and charges.
The amount of such charges is usually based on the turnover on that account (that is the amount of money that is withdrawn from the account).
In addition, most banks are expected to deduct value added tax (VAT) from the customer’s account in respect of the commission charged.
Who Is A Referee?
When opening a demand deposit account, banks are always careful to ascertain the genuineness of the customer, especially his original identity.
For this reason, two references are normally required from customers.
Referee / Reference explained
The bank also provides standard reference forms to be completed and signed by the referees the referees themselves must be people of standing.