Demand Draft
Demand Draft
- what is the demand draft,
- what are its uses and
- how it is different from the cheque.
- Why does the bank issue them
- what are the benefits?
It is also called DD or demand letter. How the demand draft is prepared and under what circumstances it is used. Demand drafts will talk about information and other aspects about it.
Demand Draft
Demand Draft or DD is a negotiable instrument issued by the bank. The negotiable instrument means that it guarantees a certain amount of payment, referring to the name of the payer.
It cannot be transferred to any other person under any circumstances. The bank issues the draft to the customer (qualification) directing another bank or its branch to pay a specific amount to the recipient by issuing demand drafts.
The recipient here is the one who has been given the draft and the recipient who issues it.
Difference between Demand Draft and Cheque
Demand drafts can be compared to cheques but they are more secure and difficult to copy. This is because the customer has to pay the bank before issuing the demand draft while the cheque can be issued without ensuring adequate funds in your bank account. So cheques can bounce but drafts ensure a secure and timely payment.
Use of Demand Drafts
Drafts are payable on demand. The beneficiary will have to introduce this device directly to the branch. It can also be collected through clearing mechanism of the bank. Most demand drafts are issued in situations where parties are unaware of each other and lack trust. It is easy to make payments from demand drafts in such situations as there is no possibility of fraud and forgery.
How it works
You can create a demand draft under both circumstances whether you have a bank account or not. You have to pay the demand draft amount in cash in the bank or from your account along with the fee. The bank will prepare a demand draft and give it to you. It will have the name of the recipient whom you want to pay and the amount written on it.
The demand draft is signed by a bank officer. The recipient can deposit it in his account just like a cheque. The payment on demand draft is guaranteed by the issuing bank.
How to make Demand Draft
You can go to your bank and fill out a form or request online to make it. In this you have to pay the recipient's name, his city and amount. The bank will tell you the fee applicable to it. You have to pay the draft amount and fee in cash or cheque.
For example, if you have to draft 5000 and the fee is 25, you have to pay 5025. If you are making a draft of more than 50,000, the details of the PAN will also have to be given.
Benefits of Demand Draft
Demand Draft has the following advantages
- No risk of carrying cash
- Reliable than cheques
- Useful in paying request fees etc.
- Easy to send by post
- Loss of Demand Draft
- You have to issue with the bank
- You have to pay the fee
- Risk of missing in mail
- Use is less in times of digital payments
If you have to cancel Demand Draft, you will have to go to the branch of the bank yourself with the original Demand Draft and submit it. If you have made a Demand Draft by paying cash, the bank will deduct its fee and give the rest of the money to you and take your signature.
If you have made Demand Draft through cheque, the bank will deduct the fee and put the rest of the money in your account.
Cash Options
Demand drafts can be used as cash but are already assured by the recipients and the amount. It is only three months from the issue of validity. Though its utility has declined in the era of digital payments, it is still a reliable means of payment and business.
This was a brief introduction of Demand Draft and benefits of it
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