What is a demand draft and how it is made?

A demand draft(DD) is an instrument issued by a bank.

To understand easily this is similar to a cheque, but cheque is like a postpaid instrument where a person with cheque can draw money once it is presented. Cheque issuer’s account will be debited once it is presented. One may not have enough balance at the time he issues a cheque. Hence sometimes because of insufficient balance in account cheque may be returned which is commonly called as cheque bounce.

Demand draft is like a prepaid instrument. One can issue demand draft only when he pay value of the DD in a bank. So a person when presents DD in a bank will definitely get money. There will be no chance of bouncing here as money is already paid for that DD by issuer.

Demand draft is akin to cheque. In the case of cheques, the drawer of the cheque is accountholder; the drawee is the bank on which the cheque is drawn and the person to whom the cheque is payabale is called as payee

A cheque is given to another person (Payee) by the drawer and the payee presents the cheque to the bank either in person or through clearing and he gets payment of the cheque subject to available balance in the account

In the case of demand draft, the issuing bank branch is called as the drawer and the paying branch of the bank is called as the drawee.

Demand draft is a cheque drawn by one branch of one bank on another branch of another bank to pay a certain sum of money named in the demand draft for which value has been already been received.

Cheque is payable subject to availability of balance in the account.

However, in the case of demand draft, the purchase has already paid the amount to the issuing branch and necessarily the payee should get payment from the payee branch. There is no question of “insufficient funds”