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A Demand Draft (DD) refers to a negotiable instrument that any Bank issues. A negotiable instrument means that it guarantees some specific amount of payment while mentioning the payee’s name.
In any situation, a DD cannot be transferred to another person.
A bank issues a DD to a person who directs any other bank or branch to pay some amount to a payee. You can either get a demand draft online or offline.
As compared to the cheques, demand drafts are hard to counterfeit and are secure. This is because the person must pay before issuing a DD to the bank, while one can issue a cheque without ensuring sufficient funds in the bank account. Therefore, bouncing for cheques is a possibility, but DD assures timely and safer payments.
A DD is also payable on demand. A beneficiary must present the instrument to the branch directly and cannot pay it directly to the bearer. One can also get it collected via the bank’s clearing mechanism.
Mostly DD is issued when the parties are unknown to one another and do not have much trust. In such situations, it is handy as then there is no chance of counterfeiting and frauds.
There are two main types of demand drafts, as follows:
This is a DD type that is only approved and payable after verifying certain documents. If the payee fails to present the required documents, they will not receive the amount.
This is a DD type that is payable only after a specific period, and it cannot be drawn from the bank before that.
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You can use a DD while making any online purchase of the items or while purchasing over the phone. You can also pay it if you have some recurring debits from the bank account, including the bill payments. Other uses of a DD include:
Therefore, usually, telemarketers, credit card companies, utility firms, and insurance agencies accept DD.
It is common that people delay depositing their cheques or demand draft for credits into the bank account. There might be various reasons for the delays, but a person must be aware that the Reserve Bank of India has reduced the validity period for demand drafts and cheques.
According to the guidelines of the Reserve Bank of India, the negotiable instruments, including demand drafts, cheques, pay orders, etc., will only be valid for 3 months.
The time is reduced to prevent people from taking undue advantages and circulating the instruments as cash in the Market. RBI also directed all the banks and their branches to not proceed with any payment if any person presents an instrument beyond three months from the issuing date. If the validity of the demand draft expires, the DD purchaser must visit the concerned branch and submit an application for revalidation of the demand draft.
A key difference between a demand draft and a cheque is that the bank issues a demand draft, and any individual can issue a cheque. There are other differences too, including:
The charges of making a demand draft are not fixed and vary from bank to bank. The instrument value helps in deciding the charge of the DD. For a fixed and smaller amount of a DD, the bank might charge a fixed rate. Furthermore, the charges of making a DD might be lower for privileged banking customers. As per the DD, the cancellation charges might also vary from 100 INR to 300 INR.