A demand draft is a financial instrument issued by a bank or financial institution on behalf of a purchaser. It is a prepaid instrument that guarantees the payment to the payee mentioned in the draft. Demand drafts are usually obtained by depositing funds with https://1investing.in/ the bank and requesting the issuance of a draft payable to a specific individual or entity. A demand draft is an instrument used for making payments through the banking system. It is similar to a cheque, but it is not drawn on an account held by the drawee.
- Ultimately, the choice between using a cheque and a demand draft depends on the specific circumstances of the payment being made.
- A demand draft is an order for the payer to pay the specified amount to the payee.
- In Banker’s cheque, the chances of dishonor are not possible because its mode is prepaid.
A demand draft is a type of payment instrument that is similar to a banker’s cheque or a cashier’s cheque. It is a prepaid negotiable instrument that is issued by a bank, which guarantees that the amount stated on the draft will be paid difference between cheque and demand draft to the payee on demand. The main difference between a cheque and a demand draft is that a cheque can be cancelled or can bounce due to insufficient funds while a demand draft is a form of guaranteed payment from a financial institution.
If a cheque falls into the wrong hands, it can be cashed or deposited into someone else’s account, causing financial loss to the issuer. One of the advantages of using a cheque is that it is a convenient way of making payments. Cheques can be issued from anywhere, and they do not require the physical presence of the person issuing the cheque. This means that one can pay bills or make purchases from the comfort of their home or office. Dishonour of a cheque due to insufficient funds in the issuer’s account is regarded as a criminal offence.
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The cheque is made out to the payee, and the payee’s name is printed on the cheque. However, a demand draft is issued by a bank instead of an individual, and the bank guarantees payment to the person named on the draft. In other words, when a bank issues a demand draft, it is promising to pay the amount specified on the draft to the person named on the draft. Banker’s Cheque or say pay order is an instrument, generally non-negotiable, issued by the bank on behalf of the customer, containing an order to pay a specified sum to the specified person, in the same city. On the other hand, demand draft is a financial instrument, used by people for the purpose of transferring money from one place to another.
Types of Demand Draft
Unless the cheque is not presented before the bank, within a reasonable time, proceeds cannot be realized. Further, the availability of funds in the account is a precondition for payment of the cheque. If sufficient funds are not present in the account, the cheque will be dishonoured. In this writeup, you will get to know about the differences between cheque and demand draft. Demand drafts (DDs) offer versatile payment options, ranging from immediate settlements to scheduled transactions, accommodating various financial needs.
The drawee won’t be able to claim their money immediately after the bank has already issued the DD. Cheques are more convenient and secure but may take longer to process while demand drafts can be processed quickly but may come with higher fees. These cheques have an extra layer of security which protects the cheque from en-cashing by allowing the payee to withdraw money only after the approval of the drawer. While comparing cheque vs demand draft, here we have included some of the key differences between both in order to understand them more clearly. Therefore, if the cheque is issued to the payee as a gift, or to lend money, he/she cannot sue the drawer, on those grounds. Always remember cheque does not mean cash because it does not infer certainty of payment.
DD’s are generally used when one has to make payment in another city and it can be cleared at any branch of the same bank. Demand Draft or DD can be understood as a prepaid financial instrument, in which the drawee bank is assumed to make the payment in full, whenever the DD is presented by the payee, to the bank for payment. It is issued by the bank in favour of the recipient to transfer money from one bank branch to another, located outside the city.
Another advantage of demand drafts is that they can be used to make payments internationally, which can be helpful for businesses that have customers or suppliers in other countries. Every Indian bank offers the demand draft and cheque facility to its customers to ensure hassle-free transactions. This streamlines the whole process and provides a more flexible and simple banking experience. Overall, a demand draft is a safe and secure way to make payments, especially for large transactions or when dealing with unfamiliar or unknown parties. It provides a guarantee of payment, which helps to protect both the payer and the payee. It’s not uncommon to wonder whether to use a cheque or demand draft, especially when it comes to transactions involving large sums of money.
Assuming you are asking which one should you use when sending payments, the answer would be a cheque. A demand draft is typically used by businesses when making large payments, or when paying another business. Cheque is commonly used for day-to-day transactions, while Demand Draft is typically used for larger transactions or where guaranteed payment is required. The primary advantage of demand drafts is that they are a guaranteed form of payment from a financial institution. In other words, demand drafts cannot be cancelled and they cannot “bounce” since the funds have already been committed to the payment. Online payment systems have gained significant popularity worldwide, used for various transactions, including e-commerce purchases, bill payments, peer-to-peer transfers, and subscription services.
The validity period of the Banker’s cheque is 3 months; however, it can be re-validated subject to some legal formalities. Demand drafts are commonly used for secure transactions such as large amounts, educational fees, property purchases, or settling financial obligations. This is the case where substantiation and secure payment delivery are highly important.
All you need is the name and address of the payee, and the bank will process the payment. A cheque is also more secure than a demand draft because it can be a stopped payment if it is lost or stolen. This is one step more secure cheque as this facility of withdrawing money is only available to the person whose name is written on the cheque and the fund can only be transferred to the payee’s bank account. This article looks at meaning of and differences between two types of negotiable instruments – cheque and demand draft.
A ‘Cheque Return Memo‘ is issued by the drawee bank to the payee bank, signifying the cause for non-clearance of the cheque, which the payee’s bank gives to the payee along with the bounced cheque. It is to be noted that, when the payment is to be made to a third party, the drawer and payee of the cheques are two different persons. But, when the cheque is drawn on ‘Self’, drawer and payee are one and the same person. These instruments come in handy when you need to schedule any future payment.
A cross cheque consists of two parallel cuts over the top left to signify its value separately for the bearer. Also, the payee has to bear some governmental identification to withdraw funds. We are here to make your investment journey simple by delivering content on financial topics in plain English. Meet Assam, a final-year chartered accountant student who’s always hungry for knowledge. Self-motivated and driven by curiosity, Assam has a passion for learning about accounting, economics, and the fascinating world of cryptocurrency. Whether it’s mastering complex financial concepts or staying up-to-date on the latest market trends, Assam is always up for a challenge.
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The key feature of a demand draft is that it is payable to the payee on demand i.e., immediately when it is presented for payment by the payee to the bank. As the demand draft amount has already been collected by the drawer bank, the payment is immediately released on presenting of the demand draft by the payee. The choice between using a cheque or a demand draft depends on the situation.
But, if you want a 100% personalized account opening service that taps into our team’s expertise and provides direct banker introductions, you can get started with GlobalBanks Insider. Below are three of the most common questions that we receive from people asking the difference between a cheque and a demand draft. If you have further questions you would like answered, don’t hesitate to get in touch with us directly. So, if you’re looking for a more detailed (and actionable) look at NRI banking, click here and access our free guide on NRI bank account opening right now. Banks are playing the most significant role in today’s modern world from money transactions to transfer of money to different parts of the world.
The processing time for a demand draft may vary depending on factors such as the issuing bank and delivery method. Often completed within hours or minutes, this allows for swift transfer of funds. A demand draft 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 signatures to be cashed. For this purpose, various methods of payment are used, in which cheques and demand drafts are also included.
When is a Demand Draft Used?
When it comes to making payments, people have different options at their disposal, including cheques and demand drafts. These two payment instruments have been around for a long time and are still widely used today. In this article, we will explore the complete differences between cheques and demand drafts, their types, advantages, disadvantages, and which one is best suited for different scenarios. So let’s first have a look at a table comparing both cheque vs demand draft in a great manner. To obtain a demand draft, choose the issuing bank or financial institution from which you want to obtain the draft. If you’re not an account holder, visit the bank branch and provide additional identification and documentation.