Demand account
From Wikipedia, the free encyclopedia
A demand account (North America: checking account or chequing account, UK and Commonwealth: current account) is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels.
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[edit] Features and access
A demand account allows the account holder to make or receive payments by:
- cash money (banknotes)
- cheque and money order (paper promise to pay)
- giro (funds transfer, direct deposit)
- direct debit (pre-authorized debit)
- standing order (automatic funds transfer)
- debit card or ATM card
- EFTPOS (cashless direct payment at a store or merchant)
Certain modes of payment are country-specific. In the United Kingdom, BACS offers giros that clear in a matter of days while CHAPS is done on the same day. Canada has an Email Money Transfer service and the United States offers e-checks.
All demand accounts offer itemized lists of all financial transactions, either through a bank statement or a passbook.
There are several ways to access funds held in a demand account:
- Branch network
- Automated Teller Machine (ATM)
- Telephone and Online banking
- Mail banking
- Stores and merchants providing EFTPOS access.
[edit] Lending via a demand account
Approaches to the provision of a negative balanced facility on demand accounts varies with nations and their cultural history of banking.
In the UK, virtually all current accounts offer a pre-agreed overdraft facility the size of which is based upon affordability and credit history. This overdraft facility can be used at any time with consulting the bank and can be maintained indefinitely (subject to ad-hocreviews). Although an overdraft facility may be authorised, technically the money is repayable on demand by the bank. In reality this is a rare occurance as the overdrafts are profitable for the bank and expensive for the customer.
In North America, overdraft protection is an optional feature of a demand account. An account holder may either apply for a permanent one, or the financial institution may, at its sole discretion, provide a temporary overdraft on an ad-hoc basis.
[edit] Interest
Unlike savings accounts where the primary reason for depositing money is to generate interest, the main function of a demand account is transactional therefore most providers either pay no interest or pay a low level of interest on credit balances.
Institutions which offer centralised services; telephone, internet of postal based; tend to pay higher levels of interest. In the UK some online banks offer rates as high as many savings accounts along with free banking (no charges for transactions).
In India, a checking account paying interest is called a Negotiable Order of Withdrawal account to differentiate it from the older type of checking account that did not pay interest, since it was prohibited by law until the 1990s.
[edit] Cost
The policy of charging a fee for doing financial transactions depends on a variety of factors, including the country and its overall interest rates for lending and for saving, as well as the size of the financial institution and the number of channels of access it offers. This is why virtual banks, operating few or no branches can afford to offer low-cost or free banking, and why, in some countries, transaction fees do not exist, but extremely high lending rates are the norm.
Financial transaction fees may be charged either per item or for a flat rate covering a certain number of transactions (usually charged on a monthly basis). Often, youths, students, senior citizens or high-valued customers do not pay fees for basic financial transactions. Some will offer free transactions for maintaining a very high average balance in their account. Other service charges are applicable for overdraft, non-sufficient funds, the use of an external interbank network, etc. In countries where there are no service charges for transaction fees, there are, on the other hand, other recurring service charges such as a debit card annual fee.
