But, again the person has to visit the bank branch to apply for the demand draft. Therefore, both of these instruments, cheques and demand drafts have their own sets of advantages and disadvantages. Although, if the check is issued to you, the issuer and payee are the same person.
The fee amount can vary depending on the bank and the transaction value. It is important to consider these costs when deciding between a cheque and a demand draft for a particular payment. When it comes to issuing a cheque, the account holder writes the cheque, fills in the payee’s name, the amount to be paid, and signs it. The cheque can then be handed over to the payee or deposited into their bank account.
You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. Demand drafts are widely accepted by businesses, educational institutions, and government agencies, making them a trusted form of payment in various sectors. Here, the role of the drawee bank is like a guarantor, which assures the release of payment on presentment of the document or collect the money from his/her bank via clearing mechanism. Demand Draft is often used when a payment needs to be made in another city and it can be cleared at any branch of the same bank. These are non-negotiable, as they are issued against the bank’s account.
Make sure if you believe the other party whom you are transferring to is trusted and a good mutual understanding between two then go for “CHEQUE“. 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. This category of demand draft is time specific, which means it will be payable only after a specific period.
Differences between cheque and demand draft, easiest way never written
Thus, it is not necessary that the payer have an account in the bank to make a request for issuing a demand draft. A cheque is a bill of exchange, where an account holder (drawer) instructs their bank (drawee) to pay a specified amount to a designated person or entity (payee). It is a negotiable instrument, governed by the Negotiable Instruments Act, 1881. Demand drafts are preferred for large transactions and fund transfers due to their guaranteed payment and lower risk of bouncing. They are also more secure as the funds are prepaid, reducing the risk of fraud.
The customer provides the necessary details, including the payee’s name and the amount to be paid, to the bank. The bank then issues the demand draft, which is typically payable to the payee or their order. A cheque is a negotiable instrument, a document through which a drawer or payer (the person issuing the cheque) promises a certain payment to the bearer of the cheque on or by a certain date. It is a written instrument individuals and businesses use to make payments from their bank accounts. An account holder issues a cheque, while a demand draft is issued directly by the bank on behalf of the payer. In both cases, the bank plays a central role in ensuring the payment is made securely.
Why And How Is A Cheque Negotiable?
Demand drafts can be cleared no matter which branch of the same bank you visit. You hereby consent to NoBroker receiving your Credit Information from Experian for facilitating such credit information to you as a value add feature when you use NoBroker’ s services. A cross cheque consists of two parallel cuts over the top left to signify its value separately for the bearer. This is a different type of cheque used to buy drafts or orders by deducting from balance from the owner’s account. You must have seen people giving an blank cheque in movies, just a joke, but in case of Demand draft it’s rare to see as a ordinary people. Save taxes with Clear by investing in tax saving mutual funds (ELSS) online.
Do cheques and demand drafts need clearing time?
Since the funds are already paid to the bank, the payment process is quick, especially with sight drafts, where the payee can claim the funds immediately upon presentation. Now, the payee has two options – first to present the cheque before the bank again within 3 months from the date stated on the cheque, or to legally prosecute the drawer of the cheque. In this writeup, you will get to know about the differences between cheque and demand draft.
Difference Between Banker’s Cheque (Pay Order) and Demand Draft
- Finally, cheques offer a variety of payment options, including payment to a specific person, bearer of cheques or a bank.
- While cheques are more commonly used for day-to-day transactions, demand drafts are preferred for more significant financial dealings.
- This process can take a few days to complete, and the funds are made available to the payee once the cheque clears.
- I have been using both methods to make the payments and they seem quite easy and convenient.
It transfers funds from one bank account to another without the need for a signature. A demand draft is issued after the drawer deposits the required funds with the bank, allowing the bank to guarantee payment to the payee mentioned in the difference between cheque and dd draft. This infact is the core of any business as businesses operate to earn money.
As businesses grow in size, large value cash transactions become both cumbersome as well as restricted by tax laws in several jurisdictions. Offline modes are in the form of exchange of negotiable instruments–a document that provides for payment of a specific sum of money at a specific time to the payee mentioned in the document. When it comes to costs and fees, there are differences between cheques and demand drafts. Generally, banks do not charge any fees for issuing cheques to their account holders. However, if the account holder exceeds their monthly limit of free cheques, additional charges may apply. On the other hand, demand drafts usually involve a fee charged by the bank for issuing the instrument.
The payee can present the demand draft to their bank, and the funds are typically made available immediately or within a shorter processing time compared to cheques. Cheques and demand drafts are distinct payment instruments with their own advantages and disadvantages. Cheques are widely used, offering convenience and flexibility, but they may involve delays, security risks, and limited acceptance. On the other hand, demand drafts provide security, faster clearance, and assurance of payment, but they may involve costs, limited usage, and non-refundable nature.
Clearance Time
A demand draft (DD) is a financial instrument used to securely transfer money between bank accounts, issued exclusively by banks. The bank issues a DD only when the drawer has sufficient funds, ensuring secure transactions. When a cheque is deposited into the payee’s bank account, it undergoes a clearance process. The bank verifies the signature, checks for sufficient funds, and ensures the cheque is not post-dated or stale. This process can take a few days to complete, and the funds are made available to the payee once the cheque clears. On the other hand, a demand draft is considered a more secure form of payment as it is prepaid.
Definition of Demand draft
You need to remember that cheques are not the same as cash because a cheque, no matter from whom it is, doesn’t guarantee payment. The cash cannot be realised until and unless the check is presented to the bank within a reasonable time. What’s more, the availability of the account is a prerequisite for cashing checks. The amount of a bearer cheque can be credited to the bank account/ paid in cash to any person who holds the cheque and presents the same. You can directly request a demand draft from your bank by paying the required amount and any applicable fees. Banks charge a fee for issuing demand drafts, increasing the overall amount of the draft.
An account payee cheque can only be credited to the bank account of the person whose name is written in the cheque as the payee. Also known as DD, it is kind of a pre-paid negotiable instrument that is used to direct payments from one bank to another bank or one of its own branches to pay a certain sum to the specified party. Since it is not always possible to give the money in cash to another person or party, they are popular for doing the payments. Since the banks are involved in between the payment process, the currency paid is considered to be authentic.
- However, they carry a higher risk of bouncing if the issuer’s account lacks sufficient funds, which can lead to delays and additional charges.
- This cheque is applicable for everyone as, whoever bears the cheque can encash without any interruption.
- If a lost or stolen cheque is misused, it can lead to unauthorized transactions and potential financial loss.
- Bill of exchange, issuer and drawee are basically two different branches of the same bank, whereas the payee is a third party to whom the payment is usually made.
If sufficient funds are not present in the account, the cheque will be dishonoured. A cheque is known as a negotiable security because it can be exchanged for cash. At the same time, we can negotiate it by endorsement, the payment of which is usually made on demand i.e., only post presenting the cheque to the bank.
While both serve the purpose of transferring funds, it’s important to understand the difference between DD and cheque for effective financial management. Knowing the distinct features of each can help you decide which option is more suitable for your transactions. On the other hand, demand draft is a financial instrument, used by people for the purpose of transferring money from one place to another.