Cheque vs. Demand Draft: Know the Difference
By Shumaila Saeed || Published on January 2, 2024
A cheque is a written order directing a bank to pay money, while a demand draft is a pre-paid negotiable instrument where payment is guaranteed by the issuing bank.
Key Differences
A cheque is issued by an individual, allowing the recipient to withdraw a specific amount from the issuer's bank account. A demand draft is issued by a bank, guaranteeing payment of the specified amount to the payee.
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Jan 02, 2024
Cheques can bounce if the issuer's account has insufficient funds, presenting a risk to the payee. In contrast, demand drafts are more secure as they are prepaid and backed by the issuing bank.
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Jan 02, 2024
Cheques are commonly used for personal transactions, offering convenience but lower security. Demand drafts are often used for official and large transactions, providing higher security but less convenience.
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Jan 02, 2024
The processing of a cheque can take several days, and the funds are not immediately available to the payee. Demand drafts, however, provide immediate funds availability as they are pre-funded.
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Jan 02, 2024
Issuing a cheque generally incurs no extra cost for the account holder. On the other hand, demand drafts usually come with a processing fee charged by the bank.
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Jan 02, 2024
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Comparison Chart
Security
Can bounce due to insufficient funds
Payment guaranteed by the issuing bank
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Jan 02, 2024
Suitability
Personal, low-security transactions
Official, high-value transactions
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Jan 02, 2024
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Fund Availability
Dependent on account balance
Pre-funded, immediately available
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Cheque and Demand Draft Definitions
Cheque
A cheque is a document that orders a bank to pay a specific amount from a person's account.
I wrote a cheque for $500 to pay for the new bicycle.
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Dec 17, 2023
Demand Draft
A demand draft is a bank-issued instrument for making non-cash payments.
She requested a demand draft for the down payment of her new home.
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Dec 17, 2023
Cheque
A cheque is a financial document used to direct a bank to pay a specified sum.
He deposited his birthday cheque into his savings account.
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Dec 17, 2023
Demand Draft
A demand draft is a secure method of transferring money from one bank to another.
They sent a demand draft to settle the invoice with the overseas supplier.
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Dec 17, 2023
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Cheque
A cheque is a paper form of a banknote, drawn from an account.
The charity sent him a thank-you letter for his generous cheque.
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Dec 17, 2023
Demand Draft
A demand draft is a bank-issued order for a certain amount of money payable on demand.
He received a demand draft as reimbursement from his company.
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Dec 17, 2023
Cheque
A cheque is a written instruction to a bank to transfer money.
He received a cheque as a refund from the store.
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Dec 17, 2023
Demand Draft
A demand draft is a financial tool for guaranteed payment, often used in large transactions.
The auction house accepted a demand draft for the antique painting.
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Dec 17, 2023
Cheque
A cheque is a negotiable instrument involving three parties – the drawer, the drawee, and the payee.
She signed the cheque and handed it to the landlord for rent.
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Dec 17, 2023
Demand Draft
A demand draft is a prepaid negotiable document guaranteed by a bank.
The university required the fee payment to be made through a demand draft.
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Dec 17, 2023
Cheque
A draft directing a bank to pay money to a named person or entity.
I was not carrying cash, so I wrote a cheque for the amount.
Sometimes abbreviations are used (which would be explained on the statement) and only the last three figures of the cheque number may be given. ‘Sundries’ are cash or cheques paid into the account.
You can avoid dealing with paper cheques — written or printed — by paying your bills online.
The daily cheque clearings began around 1770 when bank clerks met at the Five Bells (a tavern in Lombard Street in the City of London) to exchange all their cheques in one place and settle the balances in cash.
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Dec 13, 2023
Cheque
A written order directing a bank to pay money;
He paid all his bills by check
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Dec 13, 2023
Repeatedly Asked Queries
Can a cheque be cancelled?
Yes, a cheque can be cancelled by the issuer before it is cashed.
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Jan 02, 2024
How does a demand draft differ from a cheque?
A demand draft is a bank-issued document for guaranteed payment, while a cheque is an individual's order for payment that can bounce if funds are insufficient.
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Jan 02, 2024
Why use a demand draft?
A demand draft is used for secure transactions, as payment is guaranteed by the issuing bank.
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Jan 02, 2024
What is a cheque?
A cheque is a written order from an account holder instructing their bank to pay a specified sum to a named individual or organization.
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Jan 02, 2024
How long is a cheque valid?
Cheques are generally valid for six months from the date of issue.
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Jan 02, 2024
Is a cheque secure?
A cheque is less secure compared to a demand draft, as it can bounce due to insufficient funds in the issuer's account.
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Jan 02, 2024
What happens if a cheque bounces?
If a cheque bounces, the issuer may face legal and financial penalties.
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Jan 02, 2024
Are demand drafts widely accepted?
Yes, demand drafts are widely accepted, especially for official and large transactions.
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Jan 02, 2024
Is a signature necessary on a cheque?
Yes, the issuer's signature is required for a cheque to be valid.
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Jan 02, 2024
Is there a fee for a demand draft?
Yes, banks typically charge a fee for issuing a demand draft.
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Jan 02, 2024
Can a cheque be post-dated?
Yes, cheques can be post-dated, meaning they cannot be cashed until the specified date.
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Jan 02, 2024
Can a demand draft bounce?
No, a demand draft cannot bounce as it is pre-funded and guaranteed by the bank.
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Jan 02, 2024
Are demand drafts traceable?
Yes, demand drafts are traceable as they are issued by banks with specific reference numbers.
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Jan 02, 2024
Can a demand draft be issued to a specific person?
Yes, a demand draft can be made payable to a specific person or entity.
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Jan 02, 2024
How quickly can a cheque be processed?
Cheque processing times vary, but it can take several days for funds to be available.
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Jan 02, 2024
Do cheques work internationally?
Cheques can be used internationally, but they may incur additional fees and longer processing times.
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Jan 02, 2024
Is a demand draft suitable for small transactions?
Demand drafts are generally used for larger transactions due to their security and associated fees.
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Jan 02, 2024
What is the maximum amount for a demand draft?
There is typically no maximum limit for a demand draft, but it may vary by bank.
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Jan 02, 2024
How is a demand draft different from a cashier's check?
A demand draft and a cashier's check are similar, but cashier's checks are typically used in the U.S. and are drawn against the bank's own funds.
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Jan 02, 2024
Can a lost cheque be replaced?
Yes, a lost cheque can be replaced, but it requires the issuer to stop payment on the original cheque and issue a new one.
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Jan 02, 2024
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About Author
Written by
Shumaila SaeedShumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.
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