Demand Draft
Demand draft or DD is a method used by an individual or a bank to transfer money from one bank account to another. Demand drafts differ a lot from cheques, as they do not require the signature of the account holder to be cashed.
Also demand drafts are only issued by banks and you cannot issue them on an individual level. These are also much safer and carry less risk of fraud as compared to cheques because the demand draft is only issued by the bank if the drawer has sufficient funds in their account; which is not the case with cheques.
Demand drafts are only payable on demand and they can be only deposited in the bank, unlike cheques demand drafts cannot be paid to the bearer. Demand drafts are usually issued when a large amount of money is in question or within parties who are unknown to each other and thus lack trust.
A demand draft is issued by the bank, with the money from the customer’s account who requests the demand draft. This person or customer who requests the demand draft is called the drawer while the bank that pays the money is called drawee.
The name of the person or party who the demand draft is to be paid to is mentioned on the DD. This person or party who receives the demand draft is called payee. The money through this demand draft can only be transferred to the payee and no other person can receive this DD.
Types of Demand Drafts
Demand drafts are of two types— Sight demand draft and Time demand draft.
Sight Demand draft
A sight demand draft is only approved after the payee presents certain documents asked by the bank. If the payee fails to do so, the draft is not paid.
Time Demand draft
A time demand draft is only payable after a specific period of time. You cannot draw this demand draft from the bank before that time.
Demand draft or cheque? What’s the better option?
Demand draft is only prepared after checking the drawer’s account balance or after the bank receives the required payment from the drawer, this makes demand drafts a safer option as there is no chance of payment denial on grounds of low funds. So, while dealing with an unknown party, asking for a demand draft is always a better option.
