What are demand drafts?

Definition of 'Demand Draft'

A method used by individuals to make transfer payments from one bank account to another. Demand drafts are marketed as a relatively secure method for cashing checks. The major difference between demand drafts and normal checks is that demand drafts do not require a signature in order to be cashed.

Demand drafts were originally designed to benefit legitimate telemarketers who needed to withdraw funds from customer checking accounts. However, the lack of a signature required to authorize the transfers have left demand drafts open to fraudulent use. The only information needed to create a demand draft is a bank account number and a bank routing number - this information is found on a standard check.

In2005, the Federal Reserve proposed new regulations over the fraudulent use of demand drafts. The regulation increases a victim's ability to claim a refund and makes banks more accountable for cashing fraudulent checks.

Demand Draft is issued by a bank on another bank at the request of the customer.It is a promise / guarantee  given by one bank to an  individual to pay on demand of the drawee the specified sum of money.

A method used by individuals to make transfer payments from one bank account to another. Demand drafts are marketed as a relatively secure method for cashing checks. The major difference between demand drafts and normal checks is that demand drafts do not require a signature in order to be cashed.