What is the Difference Between Cheque and Demand Draft?

The main difference between a cheque and a demand draft lies in their issuance, payment guarantee, and stoppability. Here are the key differences between the two:

1. Issuer: Cheques are issued by individuals, businesses, or other entities from their own bank accounts, while demand drafts are exclusively issued by banks themselves.
2. Payment Guarantee: Cheques provide a means of payment, but they may not always be guaranteed due to the risk of a cheque bouncing if the drawer's account lacks sufficient funds. Demand drafts, on the other hand, provide a higher level of payment guarantee as they are pre-paid instruments issued by the bank.
3. Payment Confirmation: Payment confirmation is not guaranteed before the submission of the cheque and is subject to the drawer's account balance. Demand drafts provide confirmed payment status before issuance, ensuring that funds are available.
4. Stopping Payment: A cheque can be stopped or cancelled by the drawer under certain circumstances, while payment of a demand draft cannot be stopped.

In summary, cheques are written orders from an individual to their bank to pay a specific amount, while demand drafts, also known as banker's cheques, are pre-paid instruments issued by a bank guaranteeing payment to the recipient. Cheques can be cancelled, while demand drafts cannot be stopped once issued.

Comparative Table: Cheque vs Demand Draft

Here is a table comparing the differences between a cheque and a demand draft:

Cheques and demand drafts are both financial instruments used for making payments, but they serve different purposes and have distinct features. Cheques are issued by individuals or businesses and require the signature of the account holder, while demand drafts are issued by banks and guarantee payment to the recipient. Understanding these differences is essential for choosing the appropriate payment method for various transactions.