A demand draft (DD) is a financial instrument that is used to make payments. It is a payment order issued by a bank on behalf of its customer. Essentially, it is a check drawn by a bank on itself.
How does it work?
When you purchase a demand draft, you provide the bank with the amount of money you wish to transfer, along with the name of the payee. The bank then creates a draft, which is essentially a check payable to the payee.
Advantages of using a demand draft:
- Security: Demand drafts are considered a safe and secure way to make payments as they are guaranteed by the bank.
- Convenience: They are easy to use and can be sent through mail or courier.
- Proof of payment: The demand draft serves as proof that the payment has been made.
- Accepted widely: Demand drafts are widely accepted by individuals, businesses, and government agencies.
Disadvantages of using a demand draft:
- Fees: Banks usually charge a fee for issuing a demand draft.
- Time: It can take time to process a demand draft, especially if it is being sent through mail.
- Not as readily available as other payment methods: Unlike other payment methods like online transfers, demand drafts are not readily available everywhere.
When are demand drafts used?
Demand drafts are commonly used for:
- Making large payments: They are often used for transactions involving significant amounts of money.
- Paying for services: They are used to pay for services like education, insurance, and utilities.
- Making payments to government agencies: They are used for paying taxes, fees, and other government dues.
Conclusion
Demand drafts provide a secure and convenient way to make payments. They are a suitable option for large transactions, payments to government agencies, and other situations where a secure payment method is required. However, it's important to be aware of the fees associated with using a demand draft and the time it takes to process them.