Difference between a Cheque and a Demand Draft

There are a number of financial products in the market today to help make transactions easier and safer. Two such popular products are cheques and demand drafts. While most may believe that these are one and the same, there are a few key differences. In this article, we shall explore the difference between cheques and demand drafts.

What Is A Cheque?

A Cheque (sometimes also called a check) could be defined as a financial instrument that's used to make payments to associated parties. It's not usually exclusively declared, rather withdrawn at a specific bank and/or paid on demand. 

A cheque must be presented to the bank by the recipient or owner for the purpose of payment. It stays valid only for 3 months.

You need to remember that cheques are not the same as cash because a cheque, no matter from whom it is, doesn't guarantee payment. The cash cannot be realised until and unless the check is presented to the bank within a reasonable time. What's more, the availability of the account is a prerequisite for cashing checks. 

Cheques are not cashed if the payer doesn't have enough funds in his/her bank account. In which case, we'll call that cheque a bounced cheque.

What Is A Demand Draft?

A Demand Draft (or DD, for short), on the other hand, can be described as a prepaid financial instrument in which the bank that's supposed to withdraw the money is required to pay in full once the payee presents the demand draft to the bank in order to make the payment.

The bank withdrawing, assumes the role of the guarantor. The job of the guarantor is either guaranteeing the release of the payment after presenting the documents or recovering the money from his/her own account through something called the ‘clearing mechanism’.

Also important to note, the person who is requesting this change does not necessarily have to be the bank account holder. Anyone can fill out his/her DD form, pay and/or receive whatever involved fees in cash and/or check.

Demand Draft is often used when a payment needs to be made in another city and it can be cleared at any branch of the same bank.

Why And How Is A Cheque Negotiable?

A cheque is known as a negotiable security because it can be exchanged for cash. At the same time, we can negotiate it by endorsement, the payment of which is usually made on demand i.e., only post presenting the cheque to the bank. 

Parties Involved In Cheque Withdrawal

These are the parties usually involved in cheque withdrawal procedures.

Always remember that when payments are made to or by a third party, that is, someone who isn't a part of the three aforementioned parties, then the issuer and payee of the check must be aware that he/she is two separate persons. Although, if the check is issued to you, the issuer and payee are the same person.

Features Of A Demand Draft

Following are the features of a simple demand draft 

Parties Involved In Demand Draft Application

The people that are associated with a demand draft withdrawal procedure are : 

Bill of exchange, issuer and drawee are basically two different branches of the same bank, whereas the payee is a third party to whom the payment is usually made.

Major Differences Between A Cheque And A Demand Draft

  1. Contents

Following are the contents of a Cheque :

Draft request contains the following information :

Following are the types of cheques :

Following are the types of Demand Draft : 

Time Demand Draft: This type of demand draft will contain a specific date of payment. Payment is made only after or before the specified period of time.


Therefore, both of these instruments, cheques and demand drafts have their own sets of advantages and disadvantages.

Convenient and easy to handle cheques are available to process more than millions of transactions on a daily basis.

Conversely, if you need to transfer an amount from one place to another or simply desire a guaranteed payment, cheques and demand drafts are your safest bets!

Difference between a Cheque and a Demand Draft Related FAQs

Ans: Banks dishonour cheques due to the following reasons :

  • Insufficient funds

  • Irregular signature of issuer

  • Modification, that is, amending or overriding

  • If the cheque is post dated

  • If the cheque is expired

  • If payment is stopped

  • Account is frozen

Ans: A demand draft with two dashes next to each other is a crossed DD. Which is to say that the amount stated in the draft will be directly transferred to your account.

Ans: Following are the contents of a demand draft : 

  • Date

  • Name of Applicant

  • Name of Beneficiary Issued

  • Name of the City of Payment

  • Name of Branch Issued

  • Amount 

  • Bank Service Fee

  • Signature of Applicant

  • Details of the amount that's to be paid.

Ans: A customer of the bank issues the cheque.

Ans: The bank issues the demand drafts in favour of another person or entity and to the applicant

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