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Why bank deposits are known asdemand deposits ?
[2011 (T-2)]
  • a)
    Deposits with the banks
  • b)
    People have the provision to withdraw the money when they require.
  • c)
    Deposits with the banks cannot be witdrawn.
  • d)
    People have the provision to withdraw the money only by cash.
Correct answer is option 'B'. Can you explain this answer?
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Why bank deposits are known asdemand deposits ?[2011 (T-2)]a)Deposits ...
Why bank deposits are known as demand deposits?
Bank deposits are known as demand deposits because:

1. Withdrawal Provision:
People have the provision to withdraw the money when they require.

2. Flexibility:
Depositors have the flexibility to withdraw their funds on demand without any restrictions.

3. Easy Access:
Depositors can access their funds through various means such as checks, debit cards, and online transfers.

4. No Fixed Term:
Unlike fixed deposits, demand deposits do not have a fixed maturity period. Depositors can withdraw their funds at any time without penalty.

5. Immediate Availability:
The deposited funds are readily available to the depositor whenever they need it, ensuring liquidity.

6. Current Account:
Most demand deposits are held in current accounts which are specifically designed for frequent transactions and easy access to funds.

Overall, bank deposits are referred to as demand deposits because they provide depositors with the flexibility and convenience to withdraw their funds on demand without any restrictions.
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Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. Banks use the major portion of the deposits to

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Why bank deposits are known asdemand deposits ?[2011 (T-2)]a)Deposits with the banksb)People have the provision to withdraw the money when they require.c)Deposits with the banks cannot be witdrawn.d)People have the provision to withdraw the money only by cash.Correct answer is option 'B'. Can you explain this answer?
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