Demand deposits are balances held in a demand deposit account (DDA), the type of bank account, usually a checking account, from which the owner can take money at any time without giving notice. The money is payable "on demand", by check, debit card, electronic transfer or cash withdrawal.
Demand deposits in accounting
The term looks different depending on whose books are being read. For a business or individual that holds the account, a demand deposit is an asset. It is included in cash on the balance sheet, since it can be spent immediately, and the company's checking account balance is reconciled to the bank statement each month.
For the bank, the same balance is a liability. The bank owes the money to its customer and must pay it whenever asked, so demand deposits appear among the bank's deposit liabilities. Banks lend out much of what they hold, keeping enough liquid assets to meet withdrawals.
Demand deposits are contrasted with time deposits, such as certificates of deposit, which are held for a fixed term and may carry a penalty for early withdrawal. In the United States, demand deposits at insured banks are covered by deposit insurance from the FDIC up to the legal limit, and they form part of the narrow money supply measured by economists.