Difference Between Banker’s Cheque (Pay Order) and Demand Draft

Banker’s Cheque or say pay order is an instrument, generally non-negotiable, issued by the bank on behalf of the customer, containing an order to pay a specified sum to the specified person, in the same city. On the other hand, demand draft is a financial instrument, used by people for the purpose of transferring money from one place to another.

Whether it is a banker’s cheque or a demand draft, the validation period of the two instruments is 3 months, i.e. after the expiry of three months, the instrument is of no use. To a layman, there is no significant difference between these two, but actually, these two modes of payment differ in a number of ways, which we have discussed in this article in detail.

Contents: Banker’s Cheque (Pay Order) Vs Demand Draft

1. Comparison Chart
2. Definition
3. Key Differences
4. Similarities
5. Conclusion

Comparison Chart

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.
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 (Pay Order)

The banker’s cheque or otherwise known as pay order 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 are 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.

Similarities

• 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.

Conclusion

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.