What is a Bank Draft?

A demand draft (DD) is a cheque where the written amount is paid by the financial institution rather than the individual drawer’s account.

When an individual requests for banker’s draft he/she must immediately transfer the amount of the draft along with any applicable fees and charge from their own account to the bank’s account. In case the individual has no account at the issuing bank, the person has to pay for it in cash. Since the amount written in the DD is already paid for, there are no chances of it getting ‘bounced’ like the cheques unless the draft is a forgery or stolen, or the bank issuing the draft goes out of business before the draft is deposited and cleared.

The following things are to be remembered while taking a draft:

• Check the particulars like name of the beneficiary with the correct spelling, amount, place where payable etc. filled in the DD, match these with what you had filled in the application form.
• Get the DD “crossed” for security.
• In the olden days when the e transactions did not hold a significant place demand drafts were used to pay the due for personal loans and home loans as it is one of the safest modes of payment.