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Demand Deposits Are: Know the Definition, Process, Types, Up to the Strengths and Weaknesses

Demand deposits are only in the form of balances, so they do not have the form of money.

We may often hear the term "demand money", but we may not know what it means. Here we distinguish demand deposit from currency, which is in the form of physical money. Demand deposits are in the form of letters or cards, but the money is kept in a bank.

Now let's find out what demand deposits are, how they come about, their types, and their advantages and disadvantages. Here's what it says below!

Definition of Demand Deposits

Demand deposits, according to Law Number 7 of 1992 concerning Banking, are bills at a bank that can be used as a means of payment at any time. The balance issued by the bank for checking account transactions is known as demand deposits.

The bank will issue valid securities as proof of the transaction. Keep in mind that demand deposits can only be used subject to certain terms and conditions.

Meanwhile, demand deposits are defined by Bank Indonesia as current accounts kept at commercial banks. Later, this account will be used for payments by check, giro, or other orders within a certain period of time.

Therefore, transactions using demand deposits will require securities issued by commercial banks.

Process of Occurrence of Demand Deposits

Demand deposits are usually created when customers deposit their currency at a commercial bank; the owner of the money gets a checkbook with which to pay.

  1. Primary Deposits 

As previously mentioned, the main process of forming demand deposits is when someone saves card money in a bank, so that card money automatically turns into demand deposits.

  1. Deposit Loans

This is a type of loan where someone borrows money from a bank and the money is kept at the bank as a deposit that can be withdrawn at any time.

  1. Quasi Money

This third process occurs because customers have deposits in the form of time deposits (time deposit money), such as savings, time deposits, or certificates of deposit. Quasi money cannot be used for direct transactions because it must first be taken from a bank or non-bank financial institution.

  1. Derivative Deposits 

Demand deposits also occur when someone sells securities to a bank and the bank records the money received from the sale of securities as a deposit.

Types of Demand Deposits

Banks can issue demand deposits in various forms of securities, such as checks, demand deposits, credit cards, money orders, and bills. The following types of demand deposits are listed below.

  1. Check 

Checks are one of the most common types of demand deposits issued by banks. Checks are securities in the form of sheets of paper containing instructions from the account owner to the bank to give a certain amount of money to someone named in the letter.

  1. Line of Business 

Giro is another type of demand deposit. Giro is a balance in a bank that is kept by someone through a system of disbursing funds with securities. You can withdraw demand deposits by issuing checks or other securities. Giro can also be transferred.

  1. Credit card

A credit card is a card issued by a bank to a customer for use as a non-cash payment. The trick is to swipe the card on the EDC machine. Every time you use a credit card to make a transaction, the money in the account is automatically deducted from the balance. Credit card owners pay bills to the bank when they are due.

  1. Debit Card

Transactions with debit cards do not leave debts; it's almost similar to a credit card. Each transaction will reduce the user's account balance. Users do not need to carry cash or go to ATMs to make transactions because of this.

  1. Postal Money Orders

Wesel is a type of demand deposit issued by a bank in the form of a postal letter with the aim of sending money. The postal letter contains an order for the bank to send money to the party named in the money order from the account of the money order issuer.

  1. Bills

The last type of demand deposit is securities that require the bank to transfer money from the issuer's account to a designated party. Bilyet demand deposits can be in the form, notes, or written evidence.

Advantages and Disadvantages of Demand Deposits

In general, a shortage of demand deposits means that it cannot be used. Some parties cannot accept payments with demand deposits.

For example, you cannot make transactions in stores with a credit or debit card. Only parties who have facilities or are willing to accept this means of payment can make transactions with demand deposits. The use of demand deposits is definitely more effective for small transactions between companies.

The practicality of demand deposits is an advantage. If a bill of Rp. 1 million consists of ten Rp. 100.000,00 bills, only one check is needed to show the value of Rp. 1 million. Therefore, the amount of demand deposits can be determined independently according to needs. You can also track or block demand deposits if they are lost.

This is an explanation regarding demand deposits which are one of the available means of payment. Hope it is useful!

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