Need a safe and guaranteed way to transfer money? Discover how a Demand Draft (DD) ensures your payments reach the right hands without any hassle. It guarantees payment from one bank to another, thereby offering higher security than a cheque. Cheques and demand drafts are well known for functioning as instruments for transferring money, yet they are different in terms of processing and payment guarantee. Therefore, understanding the differences is critically necessary for safe financial transactions, particularly for official, educational, or business purposes. This blog will explain the concept of Demand Draft in banking with respect to its meaning, real-life applications, and differences between cheques and bank drafts.
What is a Demand Draft?
A Demand Draft (DD) is a secure, prepaid payment instrument issued by a bank on behalf of a customer. The customer pays the bank in advance, and the bank issues the draft to a specified beneficiary.
Since the amount is paid up front, the bank guarantees the payment. This makes a demand draft safer than a regular cheque, as it cannot bounce due to insufficient funds.
The recipient can deposit the demand draft into their bank account to receive the money. Demand drafts are commonly used for official payments, education fees, government transactions, and high-value transfers where payment security is important.
Types of Demand Draft
Demand drafts are generally of two types based on the time of payment:
1. Sight Demand Draft
A Sight Demand Draft is payable immediately when it is presented to the bank by the beneficiary. Once submitted and verified, the amount is released without delay.
This type of demand draft is commonly used for urgent or time-sensitive payments. The bank may verify the draft details and supporting documents before processing the payment. If the required information is incomplete, the bank may temporarily hold the payment until verification is completed.
2. Time Demand Draft
A Time Demand Draft is payable only after a specified period mentioned in the draft. The bank releases the funds after the defined time has passed and the draft is cleared.
This type is generally used in transactions where payment is agreed to be made after a fixed duration. The clearing time depends on banking procedures and inter-bank processing timelines.
Both types of demand drafts are secure payment instruments because the amount is paid to the bank in advance, reducing the risk of non-payment.
Note: As per standard banking practices in India, demand drafts are typically valid for three months from the date of issue unless otherwise specified by the issuing bank.
Details Required for Issuing a Demand Draft
When applying for a demand draft, banks require specific information to ensure secure processing and regulatory compliance. The following table outlines the key details typically needed:
Required Information |
Explanation |
Purpose |
|---|---|---|
Applicant’s Full Name |
Name of the individual or entity requesting the draft |
Establishes the identity of the purchaser |
Beneficiary (Payee) Name |
Name of the person or organization receiving the payment |
Ensures the draft is credited to the correct recipient |
Draft Amount |
Exact payment amount in numbers and words |
Avoids alteration and payment disputes |
Payment Method |
Cash payment or debit from bank account |
Confirms funding source for the draft |
Applicant’s Bank Account (if applicable) |
Account number for direct debit |
Enables seamless deduction of funds |
Branch and Payable Location |
City where the draft can be presented for payment |
Determines the clearing and settlement location |
Identification Proof (if required) |
Valid ID, such as PAN, for higher amounts |
Supports KYC and regulatory requirements |
Applicant’s Signature |
Authorized signature on the request form |
Confirms consent and authorization |
How to Create a Demand Draft
Creating a demand draft can be done either by visiting your bank branch (offline) or through your bank’s internet banking portal or mobile app (online). Below is a clear step-by-step process for both methods.
How to Create a Demand Draft Offline (At Bank Branch)
- Visit your bank branch where you hold an account or any authorized branch that issues demand drafts.
- Request a Demand Draft application form from the bank counter.
- Fill in the required details, including the payee name, draft amount, payable location, and your personal information.
- Review the form carefully, especially the payee name, date, PAN (if required), and bank details to avoid errors.
- Submit the signed form at the bank counter for verification.
- Make the payment either through cash or by debiting your bank account. After processing, the bank will issue the demand draft.
This method is suitable if you prefer in-person assistance or need immediate clarification from bank staff.
How to Create a Demand Draft Online (Internet Banking / Mobile App)
- Log in to your official bank’s internet banking portal or mobile banking app.
- Navigate to the “Requests & Services” or similar section.
- Select the option for Demand Draft request.
- Choose the bank account from which the amount will be debited.
- Enter the required details, such as payee name, draft amount, payable branch, and sometimes branch code or IFSC code.
- Select the delivery option — either branch pickup or courier delivery (if available).
- Review the application carefully and submit the request for processing.
The online method is convenient, secure, and saves time, especially for account holders with active digital banking access.
Demand Draft Charges
Factor |
Details |
Impact on Charges |
|---|---|---|
Draft Amount |
Charges are usually calculated per ₹1,000 of draft value |
Higher draft amount = Higher total fee |
Local vs Outstation |
Local drafts are payable within the same city; outstation drafts are payable in another city |
Outstation drafts generally cost more due to additional processing |
Standard Fee Range |
Most banks charge approx. ₹2.50 – ₹5 per ₹1,000 |
Subject to minimum charge as per bank policy |
Minimum Charges |
Banks often apply a minimum DD fee |
Even small draft amounts may attract a base fee |
GST |
GST may be applicable on DD charges |
Increases the final payable amount |
Duplicate DD Issue |
Re-issuance of lost or damaged draft |
Additional service charges apply |
Cancellation Charges |
Applicable if the draft is cancelled before encashment |
The bank deducts the cancellation fee |
Change in Payee Name |
Modification of beneficiary details |
An extra administrative fee may apply |
Urgency of Processing |
Some banks may charge more for urgent handling |
Expedited service may increase cost |
Bank Type |
Public, private, and cooperative banks have different fee structures |
Charges vary by bank policy |
Note: Demand Draft charges are generally nominal, but they vary across banks. Since DD is a prepaid and secure payment instrument, banks levy fees for processing, verification, and guaranteed settlement. Before applying, it is advisable to check the bank’s official rate chart, confirm GST applicability, and understand cancellation or duplicate issuance fees to avoid unexpected costs.
Benefits of Using Demand Draft
A Demand Draft (DD) is a preferred method of payment and is commonly known for its advantages, such as guaranteed payment and security. It is a popular method of payment among people who consider security and guaranteed payment as important factors in their transactions.
Guaranteed Payment
The foremost advantage of a DD is that it guarantees the payment; it can never bounce, as the banks do not issue a draft before collecting the funds from the payer. The payment is the so-called official transaction that is ideal for high-value or official transactions, ensuring that the payee receives the payment.
Widely Accepted
Demand Drafts are accepted by almost all banks and institutions, especially for official and government-related payments. A DD is a sure thing for smooth and hassle-free processing, whether it is for college fees, tender submissions, or government applications.
No Account Needed
One major benefit is that in most banks, non-account holders can still get a DD as well. This feature makes it available to everyone, giving a safe way to transfer funds without having to keep a bank account.
Secure and Traceable
A unique demand draft number is given to each DD, which makes it possible for both the drawer and the payee to oversee the payment. This feature brings in transparency and security, thus lessening the risks of fraud.
Legal Evidence of Payment
A DD performs the role of proof of payment, which makes it legally admissible as a document of remittance. In the case of disagreements, the draft can be produced as proof that the payment was indeed made, thus providing an additional layer of protection for both parties involved.
Convenient for Important Transactions
Demand Drafts are especially useful in the case of official, educational, and business transactions where trust and dependability are vital. The process to get them is easy, they are safe, and their use is not limited to one city, as there will be no bounced payments or delays.
What is the Difference between a Cheque and a Demand Draft?
Basis |
Cheque |
Demand Draft |
|---|---|---|
Definition |
A cheque is a written instruction from a bank account holder directing their bank to pay a specific amount to a person or organization. Payment depends on the balance available in the account, which means it can bounce if funds are insufficient. |
A Demand Draft is a prepaid instrument issued by a bank that guarantees payment to the recipient on demand. Since the amount is collected upfront by the bank, it cannot bounce and provides assured payment. |
Issuer |
The cheque is issued by the account holder, also called the drawer. The bank acts only on the instructions given in the cheque. |
A Demand Draft is issued by the bank itself on behalf of the customer. The bank takes responsibility for paying the specified amount to the payee. |
Charges |
For personal use, most cheques are free. Business cheques may involve a small fee, depending on the bank. |
Banks charge a nominal fee for issuing a Demand Draft. The charges depend on the amount, whether it is local or outstation, and sometimes include GST. |
Validity |
Cheques are valid for three months from the date of issuance. They can also be stopped or canceled by the account holder before being cleared. |
Demand Drafts are valid for three months from the date of issue. Cancellation can only be done through the issuing bank by submitting a proper request. |
Conclusion
Demand Draft (DD) is a safe and bank-issued payment method that moves the funds to the recipient’s account, helping to eliminate the risk of non-payment that cheques offer. DDs continue to be a preferred payment method for official, educational, and business transactions where dependability is a must. Digitally speaking, Demand Drafts and Bank Drafts still play a significant role in formal banking, offering the benefits of trust and transparency. With EnKash, you get to use smarter, quicker, and safer financial solutions that simplify payments while still holding on to the same trust, safety, and reliability of traditional DDs, thus making transactions seamless and worry-free.
FAQs
1. What is a Demand Draft in simple words?
A Demand Draft is a bank-issued instrument that is prepaid and guarantees payment to the receiver.
2. How can I find my Demand Draft number?
The DD number is usually located either at the top or bottom of the draft and is most probably on the right-hand side.
3. Can a Demand Draft be issued online?
Yes, several banks provide the facility of requesting and generating a Demand Draft online, which is then delivered to your branch or home.
4. What happens if a Demand Draft is lost?
A duplicate DD can be issued by the issuing bank upon request, but there could be extra verification and charges involved.
5. How long does it take for a Demand Draft to clear?
Typically, once presented at the payee’s bank, a DD clears either instantly or within 1–2 working days, depending on the bank concerned.
6. Can I cancel a Demand Draft?
Absolutely, you can cancel it if you submit a written request to the issuer.
