Difference Between Demand Draft and Cheque

A cheque is a negotiable instrument which includes instructions to the bank, duly signed by the drawer, to transfer funds of a certain amount to a specified individual subject to clearance. A demand draft is also a negotiable instrument, but is payable in full on demand.

Read on to find out the key differences between a demand draft and a cheque.

1. A demand draft(DD) cannot be dishonoured as the money is already paid to the bank, while in the case of a cheque, it can bounce due to instructions to stop payment by the drawer or due to insufficient funds in the account.
2. While the bank issues a demand draft, a cheque is issued by the customer of the bank.
3. A cheque payment can be stopped by the customer, however, payment done through a DD cannot be stopped.
4. A cheque book is available only to the account holder, while a DD can be executed both by account holders as well as non-account holders.
5. While the bank does not charge a fee on a cheque, a demand draft entails a bank fee.
6. In a cheque transaction, there are three parties involved: the drawee, drawer, and payee, while in a demand draft, only two parties are involved: drawer and payee.

Both, DDs and cheques are negotiable instruments intended to make payments.

Types of Demand Drafts: Sight vs Time

Demand Draft are of two types— Sight demand draft and Time demand draft.

What is Sight Demand Draft?

This category of demand draft is approved only after the payee submits documents asked by the bank. The draft will not be passed if the payee fails to submit the documents.

What is Time Demand Draft?

This category of demand draft is time specific, which means it will be payable only after a specific period. You cannot use this demand draft before the specified period.

Types of Cheques: Bearer, Order & Crossed

Cheques are of five types; they are as listed below:

1. Stale Cheque: This kind of cheque can be encashed only after the date specified on it. This cheque can be directly deposited in the bank post the date specified on it.
2. Crossed cheque: This cheque can be encashed by following the given set of instructions. It cannot be redeemed directly on the cash counter.

1. Order cheque: Only the person whose name is written on the cheque can draw it. The drawee should carry valid identity proof when drawing this cheque. 
2. Uncrossed cheque: This type of cheque is also called as open cheque and can be directly encashed at the cash counter.
3. Bearer cheque: This type of cheque can be encashed by any individual carrying it to the bank.

How to Fill a Cheque and Demand Draft Correctly

Mistakes while filling cheques or DDs can lead to rejection. Here's a quick guide on correctly filling both:

For Cheques:

• Write the date in DD/MM/YYYY format.
• Clearly mention the payee's name.
• Enter the amount in words and numbers (both must match).
• Sign using your registered signature.
• Avoid overwriting or leaving blank spaces.

For Demand Drafts:

• Fill out the demand draft application form at the bank.
• Mention the beneficiary's name and payable location.
• Provide payment either by cash or debit from account.
• Collect and verify the DD copy for accuracy.

Pros and Cons of Demand Drafts and Cheques

Here's a quick comparison of the pros and cons that highlights the difference between cheque and demand draft: