what is difference between demand draft and cheque

less than a minute read 02-11-2024
what is difference between demand draft and cheque

What is the difference between a Demand Draft and a Cheque?

Both demand drafts and cheques are financial instruments used for making payments. However, they differ in their origin, purpose, and level of security.

Demand Draft

A Demand Draft (DD) is a payment instrument issued by a bank upon the request of a customer. It guarantees payment to the beneficiary named on the draft.

Here are some key features of a Demand Draft:

  • Issued by: A bank.
  • Payment guarantee: The bank guarantees payment to the beneficiary.
  • Used for: Making large payments, paying for goods or services, transferring funds.
  • Security: More secure than a cheque as the bank guarantees payment.
  • Cost: Typically has a fee associated with it.

Cheque

A cheque is a written order to a bank to pay a specific amount of money from the drawer's account to the payee.

Here are some key features of a cheque:

  • Issued by: An individual or organization.
  • Payment guarantee: Payment depends on the availability of funds in the drawer's account.
  • Used for: Making payments, withdrawing money from a bank account.
  • Security: Less secure than a demand draft as it depends on the drawer's account balance.
  • Cost: Generally no fee associated with it.

Key Differences

Here is a table summarizing the key differences between a demand draft and a cheque:

Feature Demand Draft Cheque
Issuer Bank Individual/Organization
Payment guarantee Guaranteed Depends on drawer's account balance
Security More secure Less secure
Cost Fee associated Generally no fee
Purpose Large payments, transferring funds Making payments, withdrawing money

When to use a Demand Draft or a Cheque

  • Demand Draft: Ideal for situations where guaranteed payment is essential, such as large transactions, property purchases, or paying for services.
  • Cheque: Suitable for smaller transactions, personal payments, and withdrawals from a bank account.

Ultimately, the choice between a demand draft and a cheque depends on the specific circumstances and the level of security required for the transaction.