Many a times we get confused between the two terms banker’s cheque and demand draft, mainly due to their similar mechanism of making the payments for settling the transactions. But however, they are different from each other and serve different purposes. Let’s proceed to understand the difference between the Banker’s Cheque and Demand draft.
Contents: Banker’s Cheque Vs Demand Draft
|Basis for Comparison||Banker's Cheque||Demand Draft|
|Meaning||Banker's Cheque or Payment Order is a cheque issued for making the payments within the same city.||Demand draft is a negotiable instrument used to transfer money from one person at one city to another person in another city.|
|Validation Period||Banker's cheque is valid up to 3 months from the date of issue.||Demand draft is also valid up to 3 moths from the date of issue.|
|Special feature||All banker's cheque are pre-printed with "NOT NEGOTIABLE".||Demand draft of Rs. 20000 or more should be issued with "A/c payee" crossing.|
|Clearance||It can be cleared in any branch of the same city.||It can be cleared at any branch of the same bank.|
Definition of Banker’s Cheque
The banker’s cheque is an instrument issued by the bank on the behalf of a customer, containing an order to pay a certain sum to a specified person, within the city. The validity period of the Banker’s cheque is 3 months; however, it can be re-validated subject to some legal formalities.
In Banker’s cheque, the chances of dishonor is not possible because its mode is prepaid. It is always pre-printed with the words ‘not negotiable’ which means it cannot be further negotiated.
Definition of Demand Draft
Demand Draft is a negotiable instrument issued by the bank on the behalf of a customer, containing an order to pay a certain sum to the payee from one branch to another branch of the same bank. The validity period of a demand draft is three months, but it can be re-validated against an application. It can never be dishonored because its payment is done in advance. A demand draft of Rs. 20000 or more can be issued only with A/c payee crossing.
Key Differences between Banker’s Cheque and Demand Draft
- Banker’s Cheque is issued for transfer of money within the local boundaries, whereas the Demand Draft is issued for transferring money of the person residing in two different places.
- The area of banker’s cheque is limited while the area of demand draft is very vast.
- The banker’s cheque is pre-printed with the word “Not Negotiable” however, this is not so in the case of demand draft.
- A demand draft of value Rs. 20000 or more can be issued only with A/c payee crossing, however in the case of banker’s cheque there is no such condition.
- Bankers cheque can be cleared in any branch of the bank provided it comes under the local jurisdiction, but Demand Draft can be cleared at any branch of the same bank irrespective of the city.
- Both are used for the payment for settling transactions.
- Both are paid in advance by the customer.
- Both of these instruments cannot be dishonored because of the pre-payment clause.
- Both are used for the transfer of money.
- Both have a validation period of 3 months.
The facility of Banker’s Cheque and Demand Draft can be availed by any person, irrespective of whether he is the customer of the bank or not. The money can be easily transferred with security through these instruments because of the pre-payment facility, as there will be no chance of getting the payment dishonored or bounced.