Difference b/w Cheque and Demand Draft

A cheque is a bank order that directs the bank to pay the person the stated sum of money. The stated amount is deducted from the drawer’s (account) and transferred to the beneficiary’s account or given in cash. This is one of the most important banking instruments that people have used for a long time. Cheques are a good way to carry a significant amount of money without being noticed.

Banks issue chequebooks on the account holder’s request. However, there are several types of cheques and not every account holder is eligible for all types of cheques. Some accounts such as fixed deposits or recurring accounts do not usually require a bank account unless these are combined with a savings account. The banks hold this authority and they can suspend the cheque facility of any account holder at any time.

• Types of Cheques: Indian banking system has two types of basic bank accounts, viz. savings account and current bank account. In Both the accounts, the account holders are provided with different types of chequebooks. However, how a cheque functions largely depends on the way of issuing a cheque. A cheque issued for savings account can function differently as per the will and mode of signing of the drawer (issuer). Here are a few common ways that show the different types of issued cheques. 

1. Bearer’s Cheque: Cheque leaves printed with the word ‘bearer’ are called bearer cheques. This indicated that the person holding the cheque is eligible for the stated amount. The banks dispense the stated amount to the person holding the cheque. Bearer’s cheques are most vulnerable to frauds. A misplaced bearer’s cheque can cause you severe financial loss as anyone can encash the cheque from the bank.

2. Self Cheque: Self cheques can be issued for withdrawing money from your own bank account or given to a third party as well. A cheque becomes a self cheque when you write your name on it. You can also write ‘self’ and give the cheque to a third party. However, writing self on cheques is not safe as anyone can claim the cheque and withdraw the funds. 

3. Pay Yourself Cheque: These cheques are issued for buying bank drafts, pay orders and fixed deposits receipts. Pay yourself cheques are issued with a crossing on them as the drawer wants the bank to deduct the money from his/her bank account. 

4. PDC (Post Dated Cheque): Post dated cheques are given for encashing at a specific time. The bearer cannot encash the cheque before the stated time in any condition. These cheques are handy for making EMI payments. 

5. Crossed Cheque: A cheque crossed with two parallel lines on the top left corner is an account payee cheque that transfers the funds directly into the beneficiary’s account. The name of the beneficiary is written on the cheque and it cannot be negotiated for a cash withdrawal. These cheques are relatively safer than any other for making payments and transferring funds. 

6. Order Cheque: Despite not having any marks, an order cheque is only payable to specific company or person. You have strike out the bearer part of the cheque to make it an order cheque. This is a safer form of transferring money to another person as no one except the person whose name is on the cheque can get the money. 
7. Mutilated Cheque: A mutilated cheque is torn at a corner. The payment on this cheque is only made after the confirmation of issuer.

A demand draft is a negotiable instrument issued by the bank to the drawer. The instrument directs other bank or branch to pay the payee (beneficiary) a specific sum of money stated in the draft. Unlike cheques, demand drafts are pre-paid instruments. This means that the drawer has to first give the money to the bank to issue a demand draft. This unique feature of demand drafts makes them a safer fund transfer option.

In addition, demand drafts do not come in books or bundles and are not issued to every customer who has a bank account. On the contrary, demand drafts are issued specifically to the people who request the bank. Likewise, anyone who wants to transfer funds can issue a demand draft regardless of having a bank account. The payment for the draft can be made through cheque or cash. The individual has to fill a form and deposit the stated money. The banks also charge a small fee for issuing a draft which is around Rs. 100 to Rs. 200.

Since demand drafts require upfront payment, these are safer than any other non-digital instrument. This is because the drawer can choose the payment time and place of the draft. In addition, forging a demand draft privately is not possible as it requires certain parameters such as special bond paper, bank watermark, etc.

• Types of Demand Drafts: Demand drafts are of two types, viz. sight demand draft and time demand draft. 

1. Sight Demand Draft: These are regular demand drafts that are payable on sight. This means the payment is made by the bank as the payee presents the draft to the bank. 

2. Time Demand Draft: These types of demand drafts are payable at a specific time determined by the drawer. The time limit is within the validity of the draft which is 3 months.