Introduction: The World of Drafts
Hello everyone, and welcome to today’s video. When it comes to financial transactions, drafts play a crucial role. They provide a secure and convenient way to make payments. In this video, we’ll be focusing on two types of drafts: bank drafts and demand drafts. While they may seem similar, there are key distinctions that we’ll explore. So, let’s dive in!
Definition and Purpose
To start, let’s define each type of draft. A bank draft, also known as a cashier’s check, is a payment instrument issued by a bank. It guarantees the payment as the funds are already debited from the payer’s account. On the other hand, a demand draft, often referred to as a banker’s draft, is issued by a bank on behalf of a customer. It’s a promise of payment, with the funds being collected from the payer’s account when the draft is presented.
Issuance and Accessibility
When it comes to obtaining a bank draft, it’s usually done at the bank itself. The payer provides the necessary funds, and the bank issues the draft. In contrast, a demand draft can be obtained from various sources, including banks, post offices, and even online platforms. This accessibility makes demand drafts a popular choice for individuals and businesses alike.
Usage and Acceptance
Both bank drafts and demand drafts are widely accepted forms of payment. However, their usage may vary in different scenarios. Bank drafts are often preferred for high-value transactions, such as purchasing property or making large investments. Demand drafts, on the other hand, are commonly used for regular payments, like utility bills or college fees.
Cost and Fees
When it comes to costs, bank drafts usually have a fixed fee, which is typically higher than that of a demand draft. This is because bank drafts offer a higher level of assurance and are considered more secure. Demand drafts, on the other hand, may have a lower fee or even be free in some cases, making them a cost-effective option for many.
Validity and Expiry
Bank drafts typically have a longer validity period, often ranging from three to six months. This allows the payee ample time to present the draft for payment. In contrast, demand drafts usually have a shorter validity, usually around three months. It’s essential to be aware of these validity periods to ensure timely encashment.
