Banking Practice Exam 2026 - Free Banking Practice Questions and Study Guide

Demand deposits are considered the least sensitive to interest rate changes primarily because they are designed for immediate access and do not typically accrue interest in the same way that other account types do. This means that the interest rate fluctuations have minimal impact on the overall function and appeal of demand deposits. Customers use these accounts for transactions rather than investment purposes, and they are essentially a safe place to keep funds without concern for earning interest.

In contrast, other account types, such as jumbo CDs, are specifically structured to take advantage of interest rates. They lock funds for a set period in exchange for higher interest returns, making them more reactive to rate changes. Similarly, repurchase agreements and federal funds purchased are transactions influenced by current market rates, hence more sensitive to interest rate movements. This context highlights that demand deposits serve a different purpose - offering liquidity and stability rather than maximizing interest earning potential.