Cheque vs. Demand Draft: What's the Difference?
A Cheque is a written order by an account holder to their bank to pay a specified sum from their account, whereas a Demand Draft is a prepaid negotiable instrument issued by a bank on behalf of a payer.
A Cheque is a traditional financial instrument used by individuals or businesses to make payments. When someone writes a Cheque, they instruct their bank to transfer a specific amount from their account to the beneficiary named on the Cheque. Conversely, a Demand Draft is a bank-issued instrument where the bank guarantees the payment, ensuring that funds are already allocated for that purpose.
One of the key distinctions between a Cheque and a Demand Draft is the guarantee of payment. While a Cheque can bounce due to insufficient funds in the drawer's account, a Demand Draft offers more certainty, as it is prepaid and the bank ensures its clearance.
Cheques, being personal instruments, come with certain risks, such as forgery or alteration. This makes them less secure in some contexts. On the other hand, a Demand Draft is viewed as a more secure payment method since it's bank-issued, leaving little room for manipulation or fraud.
While Cheques are commonly used for various types of transactions, including personal and business-related ones, Demand Drafts are often used when there's a need to transfer money without a personal bank account or when a more trustworthy payment method is required.
In essence, while both Cheques and Demand Drafts serve the purpose of transferring money, the primary difference lies in the assurance of payment. A Cheque's clearance depends on the drawer's account balance, while a Demand Draft ensures payment as the bank stands as the guarantor.
Postpaid and based on trust.
Prepaid and guaranteed by the bank.
Can bounce due to insufficient funds.
Cannot bounce as it is prepaid.
Prone to risks like forgery.
More secure as it is bank-issued.
Bank on behalf of the payer.
Common for personal and business transactions.
Often used for secure transfers or when an account is absent.
Cheque and Demand Draft Definitions
An instrument that orders a payment of money from a bank account.
Mary received a Cheque for her freelance work.
A pre-paid negotiable instrument guaranteed by a bank.
To ensure secure payment, he requested a Demand Draft.
A paper tool used to withdraw money from one's account.
The refund was given in the form of a Cheque.
An instrument issued by a bank promising payment on behalf of a client.
She sent a Demand Draft to her university for tuition fees.
A written order directing a bank to pay money.
John wrote a Cheque to pay his monthly rent.
A secure method of transferring money issued by financial institutions.
International students often use Demand Drafts for fee payments.
A written commitment to pay a specific amount.
The company issued salary Cheques to its employees.
A bank-issued order for the payment of a specific amount.
The vendor prefers payment via Demand Draft.
A negotiable instrument instructing a financial institution to pay a certain sum.
The prize money was handed over as a Cheque.
A draft where payment is assured as it's backed by the bank itself.
For large transactions, a Demand Draft is considered safer.
Variant of check.
A draft directing a bank to pay money to a named person or entity.
I was not carrying cash, so I wrote a cheque for the amount.
Sometimes abbreviations are used (which would be explained on the statement) and only the last three figures of the cheque number may be given. ‘Sundries’ are cash or cheques paid into the account.
You can avoid dealing with paper cheques — written or printed — by paying your bills online.
The daily cheque clearings began around 1770 when bank clerks met at the Five Bells (a tavern in Lombard Street in the City of London) to exchange all their cheques in one place and settle the balances in cash.
Obsolete form of chequy
A written order directing a bank to pay money;
He paid all his bills by check
Withdraw money by writing a check
What is a Cheque?
A Cheque is a written directive by an account holder to their bank to pay a stated sum from their account.
Who issues a Cheque?
An account holder issues a Cheque.
How does a Demand Draft differ?
A Demand Draft is a bank-guaranteed, prepaid instrument issued on behalf of a payer.
Is a Demand Draft always accepted?
Generally, yes, since it's a guaranteed payment method by the bank.
Is a Demand Draft as risky as a Cheque?
No, a Demand Draft is more secure since it's prepaid and bank-guaranteed.
Can I cancel a Demand Draft?
Yes, but you'll need to approach the issuing bank with the original draft and proof of identity.
Do Demand Drafts expire?
Yes, Demand Drafts have a validity period, usually six months.
Why use a Cheque over direct transfer?
Some prefer Cheques for record-keeping, traditional transactions, or when electronic transfer isn't feasible.
In which scenario is a Demand Draft preferable?
For secure transactions, when an account is absent, or when a Cheque may not be trustworthy.
Can a Cheque bounce?
Yes, a Cheque can bounce if there are insufficient funds in the drawer's account.
Do Cheques have an expiration date?
Yes, typically Cheques are valid for a specific duration, often six months.
Who issues a Demand Draft?
A bank issues a Demand Draft on behalf of a payer.
Can I stop a Cheque payment?
Yes, you can request your bank to stop a Cheque payment before it's cashed.
Is there a fee to create a Demand Draft?
Yes, banks typically charge a fee to issue a Demand Draft.
Are Cheques safe for large amounts?
While Cheques can be used, Demand Drafts or electronic transfers might be safer for large sums.
Can a Demand Draft be post-dated like a Cheque?
No, a Demand Draft is payable on demand and cannot be post-dated.
Is a Demand Draft equivalent to cash?
Not exactly, but it's a guaranteed payment method and is treated as a near-cash instrument.
Do both Cheque and Demand Draft require signatures?
Yes, a Cheque requires the drawer's signature, and a Demand Draft has the bank's authorized signature.
Which is more common in business transactions?
Both are used, but Demand Drafts are often preferred for their security in significant transactions.
Can I cash a Cheque at any bank?
No, a Cheque is generally cashed at the drawee bank or deposited into a bank account.
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