A demand draft is a physical payment instrument issued by a bank or financial institution representing a guaranteed form of payment as the funds are pre-paid by the purchaser. It is a method used by an individual to make a transfer payment from one bank account to another. Demand drafts differ from regular normal checks in that they do not require the signature of the account holder to be cashed. Instead, the bank deducts the draft amount from the purchasers account and sets aside the funds. When presented for payment, the funds are transferred to the payees account. Demand drafts are commonly used for secure transactions such as large amounts, educational fees, property purchases, or settling financial obligations.

Here are some key features of a demand draft:

• It is a prepaid instrument; therefore, you cannot stop payment on it in the case of fraud or mis-intended recipient.
• It is less flexible compared to other payment methods but may offer greater security compared to electronic payments or online payment systems.
• It is usually issued by one bank to another bank or branch.
• It is a pre-paid fund transfer instrument, and it does not bounce due to insufficient funds in the account since the payment is already collected when issuing a demand draft.
• It is only payable on demand and can only be deposited in the bank, unlike cheques, which can be paid to the bearer.
• It is only issued by the bank, and one cannot issue a demand draft on an individual level.
• It is majorly issued in cases where parties are unknown to each other.

If a demand draft is lost or stolen, the purchaser should contact their bank immediately. Demand drafts can be used to scam consumers, so it is important to be careful about giving out account information.