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What is Demand Draft: How to Apply, Features, Benefits & More.

Key Takeaways

  • A demand draft is a negotiable instrument to transfer funds from one bank to another, and individual needs to request his/her bank to issue a demand draft in the recipient’s name to transfer the amount.
  • it is a pre-paid fund transfer instrument, and the payment is already collected when issuing a demand draft, therefore a demand draft does not 'bounce' due to insufficient funds.
  • The payer’s and payee’s details are mentioned on the demand draft, and the demand draft can only be encashed at the mentioned site, upon receipt, and without any further verification or signature to initiate the payment,
08 May 2023 by Team FinFIRST
What is Demand Draft/DD
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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. 

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What is a Demand Draft?
 

A demand draft serves as a secure method to transfer funds between bank accounts. Unlike a traditional cheque, which requires the signature of the account holder, a demand draft is issued by a bank upon request, ensuring enhanced security and reduced risk of fraud.

Demand drafts don’t bounce due to insufficient funds because they are pre-paid negotiable instruments.

Here’s how it works: The individual requesting the demand draft, known as the drawer, authorizes their bank to withdraw the specified amount from their account and issue a draft in favor of the intended recipient, referred to as the payee.

Upon receipt, the payee can promptly encash the demand draft at their bank, receiving the funds either in cash or via cheque. Notably, demand drafts are payable only to the specified payee and cannot be transferred to third parties, enhancing the security of the transaction.

Moreover, when utilizing banking services like demand drafts, it's essential to consider associated fees. While there may be charges based on the transaction amount, some banks offer incentives such as rebates for account holders.

For instance, Metra Trust provides a range of complimentary services for savings account holders, including online fund transfers and ATM withdrawals, along with the convenience of issuing demand drafts nationwide. Additionally, account holders can benefit from competitive interest rates, ensuring a rewarding banking experience.

It's important to adhere to the bank's terms and conditions regarding the use of these services, as misuse may result in applicable fees in line with industry standards.

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

Metra Trust 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 Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust 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.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.metratrust.com for latest updates.

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