Demand Draft and Cheque
Both DD and cheque are financial instruments used to transfer or encash money, but how do they differ from each other?
Meaning of Demand Draft and Cheque
A cheque is a negotiable instrument which includes an instruction to the bank, duly signed by the drawer, to transfer funds of a certain amount to a specified individual subject to clearance. A demand draft is also a negotiable instrument, but is payable in full on demand.
Read on to find out the key differences between a demand draft and a cheque.
- A demand draft cannot be dishonoured as the money is already paid to the bank, while in the case of a cheque, it can bounce due to instructions to stop payment by the drawer or due to insufficient funds in the account.
- While the bank issues a demand draft, a cheque is issued by the customer of the bank.
- A cheque payment can be stopped by the customer, however, payment done through a DD cannot be stopped.
- A cheque book is available only to the account holder, while a DD can be executed both by account holders as well as non-account holders.
- While the bank does not charge a fee on a cheque, a demand draft entails a bank fee.
- In a cheque transaction, there are three parties involved: the drawee, drawer, and payee, while in a demand draft, only two parties are involved: drawer and payee.
Both, DDs and cheques are negotiable instruments intended to make payments.
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FAQs of Demand Draft and Cheque
- Can a demand draft be used for sending payments abroad?
Yes, a demand draft can be used for sending payments abroad and not just in India. A demand draft can be issued in foreign currency and not just in Indian rupees.
- Can a demand draft be dishonored, just like a cheque?
No, a demand draft cannot be dishonored because the full payment has already been made for it unlike a cheque which can be dishonored if the bank account from which the cheque has been issued has insufficient balance.
- What is the charge for issuing a demand draft?
The charges for issuing a demand draft will differ from bank to bank and will not be uniform.
- Is it necessary to have a bank account in the bank to receive a demand draft?
No, it is not necessary to have an account with the bank to receive the payment through a demand draft.
- Can you cancel a demand draft?
Yes, you can cancel a demand draft but only after submitting a request at the bank of the account owner through which the demand draft was issued.
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