demand draft

What Is Demand Draft & How It Works?

Though there are a lot of digital services available now, demand drafts are still needed in some towns where traditional banking is still used to transfer funds. It is a way to pay ahead of time that has a promise signed by the bank that issued it. It's mostly used to make safe payments, especially for sending large amounts of money.

Explore the demand draft meaning how it works and why they are still needed in some banking situations below.

What is a demand draft?

DD, or Demand Draft, is a form of payment transfer method used to make payments quickly and safely. The payer can write the exact amount of money that needs to be paid to the drawee on a piece of paper. Personal checks can be cashed back if they don't have enough money on them, but demand drafts are a safe way to pay.

While DDs are used to send money between banks, they are usually only used for big deals or when you don't know the people involved. 

Types of demand draft

There are two types of demand drafts in India:

  • Sight demand draft:  This type of demand draft also promises the client that he will be paid right away when the draft is given. However, before releasing the payment, the bank may need to verify documents.
  • Demand draft: The bank doesn't send the money immediately as this demand draft comes with a set payment date in the future. This means that this draft is only good for a certain amount of time, after which the bank will not be responsible for the payment request.

Must Read: Reasons A Cheque Is Bounced Or Dishonoured 

Details required for demand drafts

It is important to give exact information when asking for a Demand Draft so that the deal goes smoothly. Here are the details required for demand draft:

Field

Details

To Pay

Payee’s details

Date

Date of the issue of DD

Bank Branch

The branch issuing the DD

Amount

Amount payable in words

DD Number

Unique number for the DD

Signature & Stamp

Bank official's signature and stamp issuing the DD

How to make a demand draft?

You can make a demand draft in two ways- offline and online:

Offline Process of Creating DD

Making a demand draft in person at a bank store is a simple process.

  • Visit a Bank Branch: Look for the same bank branch that the DD was issued.
  • Request Form: Ask the bank employees at the office for an application form for a demand draft.
  • Fill Out the Form: Complete the form by correcting the new information as required by the form.
  • Look over and sign this: You must fill out the form completely and sign it upon completion.
  • Send the Form: Bring the filled-out form to the counter and the cashier will give you a DD.
  • Pay: Pick one of the ways to pay for the DD amount. Pay through cash, a written cheque, or a debit order.

Online process of creating demand draft

The steps for making a Demand Draft (DD) online through Internet banking are simple. Here is the online demand draft process:

  1. Log in to your online bank's Internet Banking site.
  2. Use Internet banking to look for "Enquiries & Requests."
  3. Press "Issue Demand Draft" and then "Issue D.D." Also, "Check D.D."
  4. Pick a bank account to deduct the money.
  5. The person who wants to get the DD has to give the five-number branch code of the bank. This will let you choose the branch to obtain the DD. 
  6. To get the money, get the DD that the DD has already picked and go to the office where payments are usually made.
  7. After making your order, choose a delivery method. You can either pick it up in person or request a courier service
  8. Click "Submit" when you're done.

What are the charges for demand draft?

These are some of the common charges of a DD:

  • Draft Preparation Fees: Most banks charge a fee to make a demand draft. This fee can be anywhere from Rs. 1.50 to Rs. 4 for every thousand Rupees that the DD is for. You can also add service tax to these kinds of charges, and the flat charge can cover a small amount.
  • You may have to pay anywhere from 100 to 300 rupees to withdraw a demand draft. The exact amount is dependent on the bank. These fees cover the bank's routine costs for handling a request to end the account.

Consider These While Issuing a Demand Draft

When a Demand Draft (DD) is issued, there are a few important things to consider.

1. Method of payment: You can pay with cash or a bank account. To get the DD, you need to fill out the form and show proof of payment.

2. PAN information: The bank needs to see your PAN if the total amount of the DD is more than Rs. 50,000. This is required by law.

3. Pay through a bank account: When you send a DD through your bank account, let the bank know about it. The bank will quickly take the money out of my account and send me a DD.

4. Make sure the information is correct: Before you leave the bank, read the DD draft carefully to make sure the payee's information and other information are correct.

Advantages of Demand Draft (DD)

  • Secure: DDs are usually safer, which means they are harder to change or fake.
  • Prepaid money: DDs are promises that are paid for in full, so they can't be returned because there aren't enough funds.
  • Wide acceptance: DDs are good all over the country, making them a useful way to pay for many things.
  • No need for a bank account: Unlike checks, the payee does not need to lock the account at the bank in order to get the money.
  • Fixed amount: A DD's amount is also fixed, which means it can't be changed. This means that the payee will get paid back for their real loan.

Must Read: What Is Cheque & Different Types Of Cheque

Difference between a cheque and a demand draft

Here are the key differences between a DD and a cheque:

FieldChequeDemand Draft (DD)
IssuanceIssued by a customer of the bankIssued by the bank
Payment GuaranteeCan be dishonoured due to insufficient balanceCannot be dishonoured; payment guaranteed
CancellationCan be cancelled by the customerCannot be cancelled
AvailabilityLimited to account holdersAvailable to both account holders and non-account holders
Bank ChargesNoYes
Signature RequirementRequires account holder’s signatureDoes not require a signature to complete the transaction.

Conclusion

There are different types of payment options, but a demand draft has its own value. This is the safest and most reliable way to pay, especially when other options aren't working right. People will trust you more when you talk about money if you really learn about it and know how it works. If you need a bank account, consider Kotak. 

The Kotak savings account opening process is simple and swift. Open your bank account today and perform all banking tasks with your fingers.

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