Although online banking has mostly replaced traditional banking, many customers continue to use demand drafts and cheques to make payments. Some government organizations still require you to make payments for filling out forms etc through a DD. Whether you’re a business professional, a student, or an individual managing personal finances, knowing what a demand draft is and how it works can be incredibly beneficial.
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What is a Demand Draft (DD)?
A demand draft, also known as a DD, is a payment method used to streamline transactions between banks. This method ensures the payment of a specified amount to a payee whose name is indicated on the DD.
Demand drafts cannot be issued by an individual nor can they be transferred directly to a person; hence, DDs can only be issued by a bank. Demand drafts are typically issued for a large sum of money or between parties who are unknown to each other.
How Does a Demand Draft Work?
When someone requires a demand draft or DD, they visit their bank and provide the necessary details, including the recipient’s name, the amount to be paid, and the recipient’s bank details. The bank then debits the customer’s account and issues the demand draft, which is essentially a check drawn by one bank against funds deposited in another bank. Once the draft is issued, it can be sent to the recipient via mail or handed over in person. Upon receiving the demand draft, the recipient can deposit it into their bank account, and the amount is credited to their account after the clearance process is completed.
Types of Demand Draft (DD)
- Sight Demand Draft: This type of demand draft is usually paid to the payee immediately upon presentation.
- Time Demand Draft: In this type of demand draft, the bank pays the amount only after a specified period, i.e., the demand draft clearing time.
How to Make a DD?
- One can either visit their nearest bank or fill out the online application form on the official website of their bank.
- If you want to pay in cash for the demand draft, submit the offline form and the mentioned amount.
- If you want to pay through your bank account, provide its details along with the payee’s name and bank address.
- Mention important details such as currency, total amount, and payment reason.
- If the amount exceeds ₹50,000, you must provide your PAN to the bank.
- Carry your ID and address proof if the amount to be paid is much less.
- Keep a photocopy of the DD with you before handing it over.
- You might have to pay a nominal fee for the issuance of DD.
Note: If you want to know how to make a DD online, you must have your banking app or log in to the bank’s website. These days banks have the option to issue DD online, which is hassle-free.
Demand Draft Charges
| Types of DD | Applicable Charges |
|---|---|
| Up to ₹10,000 | ₹45 |
| Above ₹10,000 | ₹5 per ₹1,000 (minimum ₹50 and maximum ₹10,000 |
| Demand Draft Re-validation /Cancellation | ₹45 |
| Third-party DD of the amount up to ₹1,00,000 | ₹50 + correspondent bank charges if applicable |
| DD Request through Netbanking up to ₹10,00,000 | ₹50 + correspondent bank charges in case applicable |
Demand Draft Validity
Demand drafts remain valid for 3 months from the date of issue (as printed on the DD). If not presented within this validity period, the DD becomes invalid. However, even if the drawer made a payment from their bank account, the amount is not refunded automatically.
Features of Demand Draft
- A demand draft is an unconditional payment order, meaning it is payable only on demand.
- Unlike cheques, demand drafts do not have any stamp on them and are not directly payable to the bearer.
- A demand draft purchaser does not necessarily have to be a bank’s customer.
- DDs are issued only when there are sufficient funds in the bank account, which ensures that DDs cannot bounce and are associated with safe and timely payments.
- A demand draft is issued when the parties involved are unknown to one another and lack trust among them.
- If the demand draft isn’t delivered on time, the amount is refunded to the initiator.
Difference Between Cheque and a Demand Draft?
| Cheque | Demand Draft |
|---|---|
| A written document that requests the bank to pay a specific amount of money to a designated person | A demand draft is a negotiable instrument issued by a bank to transfer money from one location to another, in the name of a person or entity not known to payee |
| The cheque is issued by a customer of the bank | A demand draft is typically issued by a bank. |
| The party issuing a cheque, whether an individual or an authorized signatory of a firm, must sign it. | It carries the seal and signature of the authorized officer, along with the bank’s rubber stamp. |
| 3 parties involved with a cheque | 2 parties involved with a demand draft |
| Payable to order or to the bearer. | Always payable to a specific party on demand. |
Demand drafts are frequently chosen for making payments of substantial amounts, providing greater convenience compared to cash or cheque payments. A notable advantage is their suitability for cross-border transactions. However, it’s crucial to consider factors such as the validity of the demand draft, cancellation rules, and other relevant aspects before utilizing it as a payee.
