The purchaser can employ a sight demand draft to promptly transfer money to the seller, allowing the vendor to transfer ownership to the purchaser swiftly. This type of cheque has the word ‘bearer’ written in the space for adding the recipient’s name. The person encashing the bearer cheque receives the payment on behalf of someone unable to do so in person.
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This unique feature of demand drafts makes them a safer fund transfer option. Demand Draft (DD) charges differ from one bank to another, based on the amount of the draft, and also whether the draft is payable at a local branch or an outstation one. Banks impose these fees because a DD is a prepaid instrument that ascertains payment and thus, provides security to both the drawer and the payee. For instance, the local drafts usually have lesser charges while the outstation ones are charged more because of the extra processing involved.
The banks hold this authority and they can suspend the cheque facility of any account holder at any time. As per RBI rules, you can pay a maximum of INR 49,999 in cash to get a DD. If the DD amount is INR 50,000 or difference between cheque and dd more, you must pay via cheque or have the amount deducted from your bank account. Now, if you’re the recipient (payee), the money from the DD will be credited directly to your bank account when you deposit it.
In this article, we shall explore the difference between cheques and demand drafts. A cheque is a written instruction given by an account holder to their bank. It instructs the bank to pay a specific amount to a person or organisation. The payment is processed when there is enough balance in the account and the cheque is duly signed. As per the RBI rules, demand drafts of ₹20,000/- and above are issued with account payee crossing.
Demand Draft vs Cheque: Difference Between Cheque and Demand Draft
- In pay order as well there is no chance of dishonoring as the amount is already paid hence pay order is also a pre-paid instrument.
- Banks typically charge a fee for issuing a demand draft, which may vary depending on the bank and the amount of the draft.
- Draft cancellation may also incur fees if you need to cancel a demand draft after issuance.
- Be sure to pick up any between two of the cheque and the demand draft.
Both of these payment methods have their advantages and disadvantages, which make them suitable for different situations. In this section, we will provide an in-depth introduction to demand drafts and cheques and compare them to help you decide which one is better for your needs. To issue a crossed demand draft, you need to visit your bank and fill out the demand draft form with the required details, including the name of the payee and the amount to be paid. After providing the necessary bank account details, you must instruct the bank to cross the draft. This is done by drawing two parallel lines across the top left corner of the draft. It’s crucial to double-check all the details before finalizing the draft to avoid any errors.
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In addition, forging a demand draft privately is not possible as it requires certain parameters such as special bond paper, bank watermark, etc. It doesn’t directly relate to your account but refers to a document (draft) issued by the bank to make a secure payment to someone. It means that money will be transferred from the bank to the person named in the DD. When compared to a personal check, a demand draft offers several key advantages. While a personal check can be easily forged or bounced, a demand draft is guaranteed by the issuing bank.
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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. In this writeup, you will get to know about the differences between cheque and demand draft. This category of demand draft is time specific, which means it will be payable only after a specific period. Read on to find out the key differences between a demand draft and a cheque.
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- The draft will not be passed if the payee fails to submit the documents.
- If insufficient funds are available, cheques can bounce, leading to penalties for the drawer and potential damage to business relationships
- The receiver will have to go to the bank to have the draft re-verified.
- Since the bank prepays demand drafts, there’s no risk of bouncing due to insufficient funds, unlike cheques, which depend on the balance in the drawer’s account.
- It is why they are also referred to as non-negotiable financial instruments.
Likewise, anyone who wants to transfer funds can issue a demand draft regardless of having a bank account. The banks also charge a small fee for issuing a draft which is around Rs. 100 to Rs. 200. Discover how a Demand Draft (DD) ensures your payments reach the right hands without any hassle. It guarantees payment from one bank to another, thereby offering higher security than a cheque. Cheques and demand drafts are well known for functioning as instruments for transferring money, yet they are different in terms of processing and payment guarantee.
In both instruments, the payment is authorised by the payer but facilitated by the bank. With a cheque, the drawer’s signature authorises the bank to release funds, while with a demand draft, the payer must provide funds upfront to the bank, which then guarantees the payment. Crossed and order cheques provide a higher level of security, ensuring payments reach the intended recipient’s bank account Both these financial instruments are basically a secure mode of payment to any third party.
This is a very useful type of cheque which is ideal for overseas trips. Instead of carrying cash, you can use these cheques and encash them whenever required. No, PO is useful to transfer funds within the same city, but DD is valid across India. One thing that both have in common is that you have to request the bank to issue it. Demand drafts can be cleared no matter which branch of the same bank you visit.
You often resort to this when you wish to avail cash from your account. This type of cheque involves writing the word ‘Self’ in the section that demands the name of the person withdrawing cash. You have to ensure that such a cheque does not fall into the wrong hands as whoever lays hands on it will take advantage of it. Below are three of the most common questions that we receive from people asking the difference between a cheque and a demand draft.
Writing and depositing cheques can be cumbersome, requiring physical handling, especially when compared to online payment methods Cheques allow payer to make payments without needing physical cash, offering a safe and simple alternative for transactions The amount mentioned on the cheque is fixed and written both in numbers and words (e.g., ₹5,000 and “Five Thousand Rupees Only”).