Demand draft

Article summary

A demand draft (DD) is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee). A demand draft can also be compared to a cheque. However, demand drafts are difficult to countermand or revoke. Cheques can also be made payable to the bearer. However, demand drafts can only be made payable to a specified party, also known as pay-to-order. Demand drafts are usually orders of payment by a bank to another bank, whereas cheques are orders of payment from an account holder to the bank. A Drawer has to visit the branch of the Bank and fill the demand draft form and pay the amount either by cash or any other mode, and Bank will issue a demand draft. A demand draft has a validity of three months from the date of issuance of the demand draft. For instance, when enrolling in a college, an admission fee is required which can be paid through either cash or a demand draft. However, cheques are generally not accepted by most colleges. The primary reason behind this is that demand drafts are considered as a safer payment method than cheques, as the drawee is required to pay the amount indicated before the demand draft is released from the bank.…

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