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A demand draft is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client , directing another bank or one of its own branches to pay a certain sum to the specified party.
A demand draft can also be compared to a cheque. However, demand drafts are difficult to countermand. Demand drafts can only be made payable to a specified party, also known as pay to order. But, cheques can also be made payable to the bearer. Demand drafts are orders of payment by a bank to another bank, whereas cheques are orders of payment from an account holder to the bank. A Drawer has to visit the branch of the Bank and fill the DD form and pay the amount either by cash or any other mode, and Bank will issue DD. A Demand Draft has a validity of three months from the date of issuance of DD. For Example, Joining in College needs admission fee and the college can collect the amount either by cash or DD. Most of the Colleges won't accept Cheques, here is the reason why. DD is more safer than Cheque because the Drawee has to pay the amount before receiving DD from the hand of Bank while cheque can be spurious as the drawee doesn't know whether the drawer bank account is sufficient to pay that amount. the drawer need not to be the Customer of the bank. DD bears stamp.