Differences Between Cheque and Demand Draft - Learn Banking

Banks are integral part of our life as millions of transactions take place every next minute, in which the bank is involved in some way or the other, such as depositing cash and valuables, withdrawing cash at any time, transferring money from one place to another, payment of bills, booking of tickets, purchase, and sale of products or services etc. These activities can be performed by ATM, net banking, cheques and demand drafts.

But what do the two terms cheque and demand draft means? What is the difference between them? Come let’s understand the difference between a cheque and demand draft.

Cheque - Definition

The cheque is a negotiable instrument containing an order to make a certain amount of payment to the payee and is signed by the drawer. It can be easily transferred through a mere hand delivery. There are three parties to the cheque- Drawer (maker of the cheque), Drawee (bank on which the cheque is drawn), Payee (to whom the amount of the cheque is payable).

Demand Draft - Defenition

Demand draft is a negotiable instrument issued by a certain bank that directs the other bank or one of its own branches to pay a certain sum of money to the payee. In the case of demand draft there are two parties involved in it, one is drawer (bank or any financial institution), and the other is payee (to whom the amount is transferred). It is used for transferring money from one place to another and it cannot be transferred by a mere hand delivery.

Key Differences Between Cheque and Demand Draft

1. Cheque is payable either to order or bearer whereas Demand Draft is always payable to the order of a certain person.
2. Cheques can be dishonored due to insufficient balance, whereas dishonor is not possible in case of Demand Draft due to pre-payment of the amount.
3. Cheques are issued by the customers of the bank while the bank itself issues the Demand Draft.
4. Cheque book facility is available only to the account holders of the bank, but Demand Draft facility is available to both the account holders and non-account holders.
5. The purpose of the cheque is to make payment in a safe and easy mode while the purpose of the demand draft is to transfer money from one place to another.