What is a demand draft? What is it used for?

For the customer’s convenience, banks offer numerous ways to send money securely. In the era of digitised payment, several paper transfer instruments are still in use. While digital payments are quick, robust, and secure, paper instruments, such as cheques and DD, offer immense security and reliability at organisational levels. In the article below, you will find how a DD works and how it differs from other cheques. 

What is the meaning of demand draft?
 

A demand draft is a negotiable instrument to transfer funds from one bank to another. Unlike a cheque, an individual needs to request his/her bank to issue a demand draft in the recipient’s name to transfer the amount. 

When issuing a demand draft, the bank debits the amount from the drawer’s bank account. The DD is then handed over to the payee. Once the payee/beneficiary submits the draft to another bank, it immediately hands them the cash or cheque. The payer’s and payee’s details are mentioned on the demand draft, and the DD can only be encashed at the mentioned site.  

When you own a bank account, the bank offers several services, and DD is one of the fund transfer services. There are some charges based on the amount being transferred, which you need to pay when requesting a demand draft. However, you may have some rebates if you are an account holder in the bank.

A savings account holder in IDFC FIRST Bank can enjoy numerous banking services free of cost , including online fund transfers, ATM withdrawals and Demand Draft across the country. In addition, they also get the industry’s one of the best savings account interest  rates with the monthly interest credit

Disclaimer: IDFC FIRST Bank offers Zero Fee Banking on Rs. 10,000 Average Monthly Balance (AMB) Savings Account and higher account variants, subject to maintenance of AMB in the account.

These services are being offered free in good faith, and in case of abuse, the bank reserves the right to charge fees as per market norms. All rights reserved.

Common features of a demand draft
 

Here are some notable features of a demand draft.

· It is usually issued by one bank to another bank or branch.

· Unlike a cheque, it is a pre-paid fund transfer instrument, and it does not bounce due to insufficient funds in the account since the payment is already collected when issuing a demand draft.

· A DD is only payable to the recipient whose details are mentioned in the draft. Since it is a pay-on-demand service, the amount is immediately credited to the recipient when they submit the draft.

· No signature or authorisation is required to initiate the payment. Instead of verification, it says “authorised by depositor”.

How to get a demand draft?
 

To get a demand draft, you need to visit a bank and fill out the application form by mentioning your details, the payee’s details, and the bank details where you need them to be encashed. Subsequently, enter the amount, and choose the reason for payment. You can also select the currency type if needed.

Once all the details are filled in, submit the form, and pay the DD charges. The bank issues a receipt for proof of the funds being transferred. A demand draft is commonly used for paying university fees, payments to customers from a company, and fund transfers between different banks or branches.

Before the existence of online fund transfers, DDs were the commonly used fund transfer instrument due to their safety and reliability. However, they are still in use where funds transfers take place between organisations, businesses, and utility companies. Nowadays you can also use banking apps for transferring funds

IDFC FIRST Bank offers Zero Fee Banking on Rs. 10,000 Average Monthly Balance (AMB) Savings Account and higher account variants, subject to maintenance of AMB in the account.

These services are being offered free in good faith, and in case of abuse, the bank reserves the right to charge fees as per market norms. All rights reserved.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.