Demand deposit in economics and finance
At its core, demand deposit refers to the money you keep in a bank account that can be withdrawn at any time
without prior notice. It's the most liquid form of money, providing you with instant access to your funds
Unlike other types of deposits, such as time deposits or certificates of deposit, demand deposits
did not have a fixed maturity date. This flexibility makes them a preferred choice
for everyday transactions and emergencies. Banks play a crucial role in managing demand deposits
When you deposit money into your account, the bank becomes the custodian of those funds
fiery responsible for keeping your money safe and ensuring it's readily available when you need it
However, banks didn't just store your money in a vault. They also utilize a portion of the demand deposits
to provide loans and generate interest income. This practice, known as fractional reserve banking
is a cornerstone of modern banking systems. To understand demand deposit better
let's consider a few examples. Imagine Yuri at a grocery store, and you
decide to pay using your debit card. When you swipe the card, the funds
are instantly deducted from your demand deposit account. Similarly, if you need cash, you can visit an ATM
and withdraw money from your account. In both cases, the availability of funds
is possible due to the nature of demand deposits. They ensure that your money is accessible whenever
and wherever you need it. While demand deposits offer high liquidity, time deposits function differently
Time deposits, also known as term deposits, have a fixed maturity period
When you open a time deposit account, you agree to keep the funds locked
for a specific duration, which can range from a few months to several years
In return, you often receive a higher interest rate compared to demand deposits
However, accessing the funds before the maturity date may result in penalties or reduced interest
Demand deposit is a cornerstone of modern banking. Its liquidity, coupled with the ease of access
makes it an essential tool for individuals, businesses, and even governments. Whether it's for daily expenses, unforeseen emergencies
or large-scale investments, demand deposits provide the necessary financial flexibility by understanding the nuances of demand deposit
you will have a solid grasp of one of the fundamental concepts in economics and finance
That's all for today's lesson. Thank you for watching, and see you in the next video