Banks use many ways negotiable instruments or bills of exchange to receive and transfer money. Among such instruments are cheques, demand drafts and various other sub-categories of the same. Although today not much of these instruments are in circulation due to the digitized ways of instant money transfer, some college applications or government applications require you to submit demand drafts for payment of fees.
Demand draft is very much like a bill of exchange. It is issued by a bank to the drawer, who is bank’s client, directing the bank, either another branch of the same bank or a different bank altogether, to pay the sum mentioned in the demand draft, to the person who presents it at the counter.
Demand Draft Clearing Time
Demand Draft is unlike a cheque. While a cheque takes a specified time of a day or two to get cleared, the same cannot be said for the demand draft. There are no codified rules as to how long the banks have to take in clearing the DD, which is why the time taken by each bank varies. Ideally, it takes two business days for a demand draft to be cleared.
This time can be longer in case there are any issues with the instrument. As stated earlier, Demand Drafts are executed after several scrutinies and they are technically drawn by a bank on another bank. In situations where the amount has to be transferred from one bank to another, there is a possibility of it taking longer than two days.
Difference between Cheque and Demand Draft
Although it looks a lot like the cheque, there are some differences between the two. Where a cheque can be countermanded, a demand draft is not that easy to countermand. Basic differences between a DD and a cheque are as follows:
- These are only payable to the party mentioned on the instrument and to nobody else, whereas cheque can be payable to the bearer of it as well, depending on whether or not it is a crossed cheque (in which case it can only be paid to the person in whose name it has been drawn).
- Demand drafts direct one bank to pay the specified sum to another bank, whereas a cheque is made to transfer funds from one account to another.
- In order to make a cheque, you simply need to fill in the details in the chequebook and hand over the filled leaf to the beneficiary; rest needs to be done by the beneficiary. On the other hand, the process of getting a demand draft issued from the bank is comparatively lengthy.
- You have to visit a bank and fill out the DD slip and pay cash over the counter to get a DD issued. Nowadays, small value DDs can be issued via phone banking or internet banking.
Charges for Making a Demand Draft
Although Reserve Bank of India has advised the banks to be reasonable in charging the customers for service of demand draft, the bank has not specified a fixed charge for the same. Every bank has its own set of charges for issuing a demand draft. In some cases, this rate varies within the banks depending on the priority points of a given customer.
How to Get a Demand Draft Issued
- Visit the bank where you have your account.
- Draw a cash in the name of “self”
- Ask the bank teller to give you the form needed to be filled for making the demand draft
- Fill in the details and submit the form along with the cheque.
- The teller will scrutinize all the details and once he is satisfied, he will ask you to pay a small charge for making the DD
- He will then stamp the DD and hand it over to you.
You can also get the DD made through cash, in case you do not have an account in the bank.
The same can also be done online.
Basic Features of a Demand Draft
- Demand Draft is payable on demand to the drawer.
- A Demand Draft is not payable to just a bearer. To be entitled to receive payments by Demand Draft, the beneficiary must present the instrument to the drawee bank in person.
- Traditionally, the drawee bank makes payment to the beneficiary when he presents the demand draft. In some cases, the beneficiary can request his or her bank to receive payments through their clearance mechanisms.
- There are no online means to receive DD money.
- There is a provision for dealing with Demand Draft related matters in the code of law under the Negotiable Instruments Act, 1881.
Things to Check When You Receive the Demand Draft
Once you receive the demand draft always ensure to recheck the following:
- Details filled on the instrument
- Name of the receiver
- Address and amount
- Keep a photocopy of this demand draft before you hand it over to the beneficiary.