Have you ever found yourself in a dilemma while making payments? 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.
A cheque is a written order by an account holder to their bank to pay a specified amount of money to a recipient, while a demand draft is a prepaid instrument issued by a bank that guarantees payment to a recipient upon presentation.
Both forms of payment have their advantages and disadvantages, but which one is better suited for your needs? We’ll explore the differences between cheques and demand drafts and help you decide which one is right for you.
Cheque vs. Demand Draft
| Cheque | Demand Draft |
|---|---|
| A cheque is a written order by an account holder to their bank to pay a specified amount of money to a recipient. | A demand draft is a prepaid instrument issued by a bank that guarantees payment to a recipient upon presentation. |
| Funds are withdrawn from the account of the account holder when the cheque is presented for payment. | Funds are paid in advance to the bank by the person requesting the demand draft, and the bank guarantees payment to the recipient upon presentation. |
| The account holder signs the cheque as an authorization for the bank to make the payment. | The person requesting the demand draft provides funds to the bank upfront, and the bank issues the demand draft as a guaranteed payment instrument. |
| Cheques are commonly used for day-to-day transactions, such as paying bills, making purchases, or transferring money between accounts. | Demand drafts are often used for larger transactions, such as making payments for business transactions, paying tuition fees, or buying property, where guaranteed payment is required. |
| It can be cancelled or stopped by the account holder before it is presented for payment, if necessary. | It can be cancelled or stopped by the person who requested it before it is presented for payment, if necessary. |
| Banks may charge fees for issuing, processing, or dishonoring a cheque, depending on their policies. | Banks may charge fees for issuing a demand draft, and additional charges may apply for cancellation, re-issuance, or other services related to demand drafts, depending on their policies. |
Definition of a cheque and demand draft
A cheque is a document that orders a bank to pay a specific amount of money from a person’s account to the person in whose name the cheque has been issued. A demand draft is similar to a cheque in that it orders a bank to pay a specified amount of money. However, a demand draft is typically used when the payer and payee are not known to each other or when the funds need to be transferred quickly.
Advantages and disadvantages of a cheque
There are advantages and disadvantages to using a cheque instead of a demand draft. A cheque is a negotiable instrument that allows the holder to receive payment from the payer. A demand draft is an order for the payer to pay the specified amount to the payee.
The advantage of using a cheque is that it can be used to make payments anywhere in the world. 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.
The disadvantage of using a cheque is that it can take several days for the payment to clear. This delay can cause problems if you need to make a last-minute payment. In addition, some banks charge fees for processing cheques.
Advantages and disadvantages of a demand draft
A demand draft is a type of check that is drawn on a bank and payable to a specific person or entity. The main advantage of a demand draft is that it is a guaranteed form of payment, meaning that the payee will receive the full amount of the draft on the date specified. This type of guarantee is not typically available with personal checks.
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.
One potential disadvantage of using a demand draft is that it can be more expensive than other types of checks. This is because banks often charge fees for processing demand drafts. In addition, if you need to cancel a demand draft, you may be charged a fee by the bank.
Another disadvantage is that demand drafts can take several days to process, so if you need to make a payment quickly, this may not be the best option.
Key differences between a cheque and a demand draft
A cheque is a document that orders a bank to pay a specific amount of money from a person’s account to the person in whose name the cheque has been issued. 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.
There are a few key differences between cheques and demand drafts:
- Cheques are drawn on an account held by the drawee, while demand drafts are not.
- Cheques can be post-dated, while demand drafts cannot.
- Cheques can be canceled by the drawer, while demand drafts cannot.
- Demand drafts are generally more expensive than cheques.
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Which one should you use?
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.
When you open an account with the Bank, you will be asked to fill out some paperwork. This will include your personal information, such as your name, address, and phone number. You will also need to provide some financial information, such as your Social Security number and bank account number. Once you have completed the paperwork, you will be able to issue cheques or demand drafts from your account.
Conclusion
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.
