Demand Draft (DD): How It Works and When to Use One

A Demand Draft is a pre-paid payment instrument issued by a bank that guarantees payment to the payee. It is one of the most reliable ways to send money across cities in India, especially in situations where electronic transfers are not preferred or where a physical payment instrument is required. Here is a complete guide to demand drafts.

What is a Demand Draft?

A Demand Draft (DD) is a payment instrument in which the issuing bank guarantees that the specified amount will be paid to the named payee on demand. The bank collects the amount from the buyer’s account at the time of issue, so the draft is always backed by funds.

The key feature: a DD can be presented at any branch of the issuing bank or at the drawee bank (if it is a different bank) for payment. It is a negotiable instrument, similar to a cheque, but cannot bounce.

How a Demand Draft Works

1. You visit your bank (or use online banking).
2. You request a DD for a specific amount payable to a specific person or organisation.
3. The bank debits your account for the amount plus the DD charges.
4. The bank issues a printed DD instrument with the payee’s name, amount, and the drawee bank/branch details.
5. You send the DD to the payee.
6. The payee presents the DD at their bank for collection.
7. The money is credited to the payee’s account.

When is a DD Required?

– **College admissions:** Many universities and colleges require DDs for application or admission fees.
– **Inter-city payments:** When paying a supplier or individual in another city who prefers a physical payment instrument.
– **Government offices:** Various government departments, courts, and regulatory bodies accept DDs.
– **Business transactions:** When buyers and sellers are in different cities and the seller does not trust a personal cheque.

DD vs NEFT/RTGS

In today’s digital age, NEFT and RTGS can replace most DD use cases. However, DDs are still preferred when:

– The recipient does not have a bank account or prefers a physical document.
– Government bodies mandate a DD for specific applications.
– The payer does not want to share their bank details.

Charges for a Demand Draft

DD charges vary by bank but follow a similar pattern:

– Up to Rs. 5,000: Rs. 25 to Rs. 50.
– Rs. 5,001 to Rs. 10,000: Rs. 50 to Rs. 75.
– Rs. 10,001 to Rs. 1 lakh: Rs. 100 to Rs. 150.
– Above Rs. 1 lakh: Rs. 200 to Rs. 500.

Premium account holders may get DDs at reduced charges or free.

Validity of a Demand Draft

A DD is valid for 3 months from the date of issue. If not presented within 3 months, it must be revalidated by the issuing bank before it can be presented for payment.

Cancellation of a DD

If you need to cancel a DD, return it to the issuing bank with a written request. The bank will cancel the instrument and credit the amount (minus a small cancellation charge) back to your account.

Crossed and Uncrossed DDs

A DD can be crossed (the payee must deposit it into a bank account and cannot encash it directly at the counter) or uncrossed (can be encashed at the counter). Most DDs are issued as “Account Payee” crossed drafts for security.

Key Takeaways

– A Demand Draft is a guaranteed payment instrument issued by a bank, debiting your account upfront.
– Cannot bounce since the bank has already collected the funds.
– Valid for 3 months. Revalidation required after expiry.
– Used for college admissions, inter-city payments, and government submissions.
– Charges range from Rs. 25 to Rs. 500 depending on the amount.
– In most cases, NEFT or RTGS are faster and cheaper alternatives for electronic transfers.

While DDs are less common than they were a decade ago, they remain an important payment instrument for specific use cases where a physical, guaranteed instrument is required.