Banking is a very important sector that makes the transaction easy between two entities. The banking industry has revolutionized the way financial transactions are conducted, offering convenience, speed, and security.
From UPI to debit cards, credit cards, and more, these tools have made it easier than ever to manage our finances.
Among these instruments, demand drafts and cheques stand out as traditional yet crucial tools for facilitating transactions.
In this article, we will discuss the Difference Between Demand Drafts and cheques, what is DD, What cheques are, and much more.
What is Demand Draft?
A demand draft, also known as a banker’s draft, is a prepaid instrument issued by a bank on behalf of one of its customers.
It functions as a secure method of payment, typically used for large transactions or when the payee requires guaranteed funds.
To obtain a demand draft, the payer must provide the issuing bank with the necessary funds, including any fees associated with the draft.
Once issued, the demand draft is payable to a specific beneficiary, who can then present it to their bank for payment or deposit into their account.
How to Apply for Demand Draft?
The following are the steps that you can follow to apply for a Demand Draft-
- Visit your nearby bank branch where you have your account and ask the bank representative for the Demand Draft application form
- Fill out the application form with details like the beneficiary’s name, and the bank’s name and branch where the DD will be payable along with other details
- Now, Attach the documents required, such as proof of identity like a PAN Card or Aahaar Card
- Now, submit the form and pay the necessary fees and you’ll receive the bank will issue the Demand Draft
- After that, you’ll have to collect the acknowledgment or receipt for the Demand Draft from the bank.
What is a Cheque?
A cheque is a written, unconditional order issued by an account holder to their bank, directing the bank to pay a specific amount of money to the designated payee or bearer upon presentation.
Cheques serve as a convenient method of transferring funds between individuals and entities, providing a record of payment and allowing for easy tracking of financial transactions. It comes with a DD Number used for tracking the transaction.
To issue a cheque, the account holder must have sufficient funds available in their account to cover the amount specified on the cheque.
The payee can then deposit or cash the cheque at their bank, after which the funds are transferred from the payer’s account to the payee’s account.
How to Fill the Cheques?
The following are the steps that you can follow to fill the cheques-
- Write the current date on the cheque followed by the name of the person or organization you are paying
- Now, Write the amount of money you want to pay in numerical digits as well as in words in the given fields
- Sign the cheque at the bottom right corner and authorize the cheque
Difference Between Demand Draft and Cheque
The following are the differences between a Demand Draft and a cheque–
| Demand Draft | Cheque |
| A written order from one bank to another bank directing payment to a specific party. | A written order by an account holder to their bank to pay a specific amount to a designated payee or bearer. |
| A demand Draft is issued by a bank | It is issued by an individual or entity with a bank account |
| The Payment is guaranteed by the issuing bank. | Payment is dependent on the availability of funds in the payer’s account. |
| Demand Draft can be issued by banks with branches across different locations, making it suitable for outstation payments. | Cheques can be issued by any individual or entity with a bank account, making it widely accessible. |
| No signature of the account holder is required as it is issued directly by the bank. | This type of payment requires the payer’s signature to authorize the payment |
| It is often used for large transactions, payments to institutions, and cross-border payments. | It is commonly used for transactions such as bill payments, salary disbursements, and business transactions. |
| Does not require clearance; funds are directly debited from the payer’s account. | Requires clearance through the banking system before funds are transferred from the payer’s account to the payee’s account. |
FAQ
A demand draft is a form of prepaid instrument issued by a bank, typically drawn on another bank, and utilized for facilitating payments.
A cheque is a negotiable instrument that directs a bank to pay a designated amount from the drawer’s account to the specified payee.
A demand draft is valid for a specified period anywhere from three to six months after which it expires.
Yes, demand drafts can be canceled or stopped by the purchaser before it is encashed by the payee.
