What is a Demand Draft?

Posted on Monday, September 23rd, 2024 | By IndusInd Bank

Have you ever faced a situation where a cheque or cash payment was not accepted? For instance, many educational institutions require payment through a Demand Draft (DD) instead. If you’re unfamiliar with DDs, it’s time to understand the demand draft meaning and its significance as a financial instrument.

A demand draft is a secure and reliable mode of transferring funds, ensuring both convenience and safety. Unlike cheques, which can bounce, or cash, which can be lost or stolen, a DD is a prepaid financial instrument issued by a bank, guaranteeing the payment of the specified amount to the beneficiary on demand.

Curious to learn more about how demand drafts work and why they are a preferred method of payment. Continue reading as we delve into the details of DDs, with examples and reasons for their widespread use. 

What is DD in bank?

A demand draft is a prepaid financial product that allows the transfer of funds from one individual or entity to another without the need for cheques or cash. They are widely used for reliable and secure transactions, especially when huge sums of money are involved or when the parties involved have no mutual trust.

The financial institution issuing the DD assures the payment. Thus, ensuring that the beneficiary receives the amount on presenting the draft. To obtain a DD, the drawer must approach a financial institution and provide the required funds along with the applicable charges. The financial institution then issues the DD, which can be deposited by the beneficiary into their bank account or encashed at any branch of the issuing financial institution.

Let’s take an example of a student in Kolkata who needs to pay their first-year college fees in Mumbai. Instead of sending a cheque or cash, which can pose risks of bouncing or loss, the student can obtain a demand draft from their bank in Kolkata and post it to the college in Mumbai. This method ensures that the college receives fee payment securely and promptly.

Unlike cheques that bounce if there are inadequate funds, a demand draft is already paid for. This means the funds are already secured by the financial institution at the time of issuance. Hence, there is assurance that the payment will be honoured, offering an added layer of security for both, the payer and the recipient.  

Why is a Demand Draft Required?

1. Wide Acceptance

Demand drafts are accepted by government bodies, educational institutes, and various organisations for payments, acting as a reliable transaction mode.  

2. Security

Unlike cheques, demand drafts are prepaid, eliminating the risk of bouncing owing to inadequate funds. This makes them a highly preferred choice for transactions requiring guaranteed payments.

3. Zero Limit on Amount

You can issue demand drafts for huge sums of money without any restrictions, which are typically associated with other payment modes. Since this is an essential benefit of a savings account, it is imperative to choose a suitable account offering benefits not just linked to the demand draft but also other features. You may consider the Indus Select Savings Account by IndusInd Bank. Why?

This is because, besides offering the benefit of swift demand draft preparation, it provides an array of features, making it an excellent choice for families. Here’s a detailed look at the features–

Read More: The Importance of Saving Money: Tips for Building Your Savings

Ending Note

A demand draft is a widely accepted and secure financial instrument for making payments. Its prepaid nature ensures there is no risk of inadequate funds, making it a trusted method for huge and crucial transactions. Additionally, with Indus Select Savings Account by IndusInd Bank, you not only get a safe way to manage your finances and prepare demand drafts but even enjoy various family-centric advantages that add considerable value.

Ready to experience the benefits offered by this savings account? Open a bank account with IndusInd Bank today and secure your family’s financial future today!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.