Demand Draft: What It Is and How It Works Versus Checks

This is because the drawer needs to pay before issuing a Demand Draft to the bank, while a check can be issued without ensuring adequate funds in your bank account. Therefore, checks can bounce, but drafts guarantee a secure and timely payment. Further, a personal check can bounce since there’s no verification at the time of writing that you do have the amount in your account.

Moreover, many institutions and organizations prefer cheques as a mode of payment as they are less likely to bounce compared to cash payments. Although a check can be hand-delivered, this is not the case with a demand draft. The draft may be drawn regardless of whether an individual holds an account at the bank while difference between demand draft and cheque a check may be written only by an account holder. A demand draft is issued by a bank while a check is issued by an individual. Also, a demand draft is drawn by an employee of a bank while a check is drawn by a customer of a bank. Payment of a demand draft may not be stopped by the drawer as it may with a check.

What is Demand Draft – Importance, Features & Types

It can also be used when there are recurring debits from your bank account, such as bill payments. A bank draft requires a deposit equal to the amount of the check, plus any applicable fees, before it may be obtained. Although the bank actually processes the payment, the check is issued in the name of the individual writing it.

A bank draft is a trusted and secure payment option that may be given to the payee. On the other hand, a demand draft is an instrument used for transfer of money in a particular place. Demand draft is issued by a bank and is drawn by one branch of a bank on another branch of the same bank. In a demand draft, both the drawer and the drawee are the same persons from the same bank. A Demand Draft has not precisely defined in the Negotiable Instrument Act.

Difference Between Bank Draft and Certified Cheque

However, they are still in use where funds transfers take place between organisations, businesses, and utility companies. This cheque is applicable for everyone as, whoever bears the cheque can en-cash without any interruption. This is also not a safe method of payment as anyone can cash out money without the owner’s consent.

Iii) The demand draft is complex in case of issuing as it is issued by the bank. A demand draft allows someone to withdraw money from your checking account without your signature. Demand drafts are orders of payment by a bank to another bank, whereas cheques are orders of payment from an account holder to the bank.

What Is the Definition of Cheque and DD?

This is because it is guaranteed by a financial institution instead of being issued against a person’s bank account. In other words, the funds have already been secured by the bank before the demand draft is issued. Therefore there is no risk of the demand draft not being cashed by the bank. Many organizations use demand drafts to issue refunds to their customers, such as in the case of cancellations or returns.

• Because a demand draft is a prepaid instrument, payment cannot be stopped, whereas payment of a check may be denied for insufficient funds.
• A cheque is not usually accepted in many transactions because the payee and drawer are unknown, and there will be credit risk as Cheque may bounce.
• Demand drafts are sent when a bank account holder (a “drawer”) requests that a demand draft be sent from their bank (the “drawee”) to that of their recipient (the “payee”).
• Cheques are one of the oldest and most common forms of payment in the world, and they continue to be widely used despite the rise of digital payment methods.

A demand draft is a financial instrument used for making payments or transferring funds between two parties. It is a type of cheque that is guaranteed by the issuing bank and is commonly used in situations where the payee requires a more secure form of payment than a personal check. The person who wants to make a payment, known as the payer, requests a demand draft from their bank. The payer provides the bank with the name of the payee and the amount of the payment. The bank then withdraws the funds from the payer’s account and creates a demand draft for the payee.