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Demand Draft

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A demand draft, or "DD," is a type of note that's sometimes used by banks to transfer money from one account to another.

Similarly to checks and money orders, demand drafts come in the form of paper certificates that are used for purposes of money transfer. Unlike checks and money orders, however, demand drafts do not require a signature in order to be cashed and are facilitated by the banks themselves rather than simply issued by the banks and facilitated by account holders.

How Demand Drafts Work

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"). Following this request, the bank, in turn, issues a demand draft to the payee who can then cash the demand draft at their own bank without needing to provide a signature. Because of the role that banks play in facilitating them, demand drafts are a very safe method of transferring money — even safer than money orders and most cheques. Despite this, however, fraudulent uses of demand drafts have led to tighter restrictions on their use over the last decade.

How To Send a Demand Draft

To send a demand draft to somebody else, you'll need to first have paperwork in order, which includes a demand draft application form from your relevant bank, as well as the name and banking details of both the drawer and the payee. In certain circumstances, it's also possible to send a demand draft using cash, in which case the drawer's banking details will probably not be required.

Once you've completed the application and submitted it to your bank, you will usually be charged a fee for the service. The form will then be processed and returned to you for issuance to the payee.

It's well worth noting that the exact steps that need to be followed in order to send a demand draft can vary extensively depending on a number of factors, including how much money you're sending, your bank, and your country.

When (and When Not) To Use a Demand Draft

In general, demand drafts could make sense for you over a bank transfer if you plan on sending a large amount of money, e.g. perhaps for purchasing a home or another pricey asset. This is because demand drafts typically don't have limits as bank transfers do, making them a preferred method for these types of purchases.

What's more, demand drafts are also a very safe means of payment as they essentially guarantee the availability of funds. For the receiver, this can be very assuring, and it offers a level of security to a transaction that a standard cheque does not.

On the other hand, because demand drafts can be very difficult to cancel or retract once sent, and because they can potentially be cashed by the wrong person, we'd generally advise against using them unless you're absolutely sure the draft will reach the right person.

Furthermore, demand drafts are often not a smart choice when it comes to transferring small sums of money, as the service fees they're associated with can often add a lot to what you end up paying. In these cases, it's usually smarter to make a bank transfer online, or even issue a cheque or money order.

Header photo distributed under a Pixabay license

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