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

Banker’s Cheque (Pay Order) vs Demand Draft

The key difference between Banker’s Cheque (Pay Order) and Demand Draft lies in the fact that banker’s cheque is used to make payments within one city.

A demand draft is used to transfer money from one person of a city to another person in a city. Banker’s cheque can be cleared in any bank of the same city while the demand draft can be cleared in any bank of another city.

Banker’s cheque is drawn on a bank and provided to a customer or non-customer of a bank and is always issued only after depositing the money. It becomes valid as soon a bank officer signs on it and is usually valid for a maximum of three months.

A Demand draft is an order of payment from a customer of that bank to a party. It can only be drawn by that party whereas the banker’s cheques can be drawn by the bearer of the cheque i.e., anybody who bears it can withdraw the amount. 


 

Comparison Table Between Banker’s Cheque (Pay Order) and Demand Draft (in Tabular Form)

Parameter of ComparisonBanker’s ChequeDemand Draft
Also called asBank cheque or pay orderSight draft as money is paid only after seeing the draft.
Provided byCustomer or non-customer of a bankCustomer of a bank
Issued toA bearer and to be claimed from the respective bank. Anybody who bears the cheque can withdraw money from the bank and no account is required with the bankA party and to be claimed from the respective bank. Only the respective party (an account) can withdraw the money from the bank
Money depositionIt is required to deposit the money to the bank before drawing the chequeIt is not always required to deposit the money before drawing the demand draft
Chances of bouncing?It cannot be bounced as money is already paid to the bankThere are chances of bouncing i.e., the demand draft being rejected as there is no enough money in the respective bank account
Who is responsible for paying the money?The bank bears the responsibility of paying the money to the bearer as money was already deposited.The account holder is responsible for paying the money.
Who signs it?The bank officer signs it, only then it becomes valid The account holder or customer of that bank signs it and it is valid even without the signature of any of the bank officers
Valid for? a maximum of three months and if unclaimed, a request can be made to the bank a maximum of three months and after that it becomes invalid and the money remains in the same bank account.
Reliability?It is more reliable as there is no chance of bouncingIt is less reliable as there are chances of bouncing
Territory limitIt is issued and cleared within the same city It can be issued in one city and can be cleared in another city
Negotiable?NoYes

 

What is Banker’s Cheque (Pay Order)?

A Banker’s cheque, also known as pay order or bank cheque, is drawn on a bank and provided to a party who may or may not be a customer of that bank.

Money is deposited beforehand, only then it can be issued. Also, the bank bears the sole responsibility of paying the party. It is signed by a bank officer and it is a must for the banker’s cheque to be valid. A banker’s cheque is valid for a maximum of six years from the date of issue.

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Sample for Bankers Cheque
Sample for Banker’s Cheque
 

What is the Demand Draft?

A Demand draft is a payment order issued by a customer of a bank to a bearer. Anybody who bears the demand draft can withdraw the specified amount from the bank.

It just needs the bearer name, amounts to be withdrawn, date of issuing and the signature of the account holder who pays the amount. A demand draft is usually valid for a maximum of three months from the date of issue. 

Sample for Demand Draft
Sample for Demand Draft

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

  1. A banker’s cheque is also called a bank cheque of pay order and a demand draft is also called a sight draft as money can be withdrawn only after seeing the draft.
  2. The former can be issued by either a customer or a non-customer of the bank whereas the latter can only be issued by a customer of the bank.
  3. The banker’s cheque is issued to a bearer and anybody who bears the cheque can withdraw money. But a demand draft is issued to a party  (an account with the bank) and can only be withdrawn to that party’s account.
  4. Money needs to be deposited in the bank before drawing a banker’s cheque but it is not so, in the case of a demand draft.
  5. So the chance of bouncing is impossible with a banker’s cheque whereas it may happen with a demand draft when the account is not with sufficient money.
  6. The bank holds the responsibility of paying money as it was already deposited whereas the account holder holds the responsibility in the case of a demand draft
  7. The former becomes valid after being signed by a bank officer whereas the latter becomes valid just after signed by the account holder.
  8. Both are valid for up to three months but in the case of a banker’s cheque, a request can be made if the money is unclaimed.
  9. The former is more reliable than the latter as there is no chance of bouncing with a banker’s cheque.  
  10. The banker’s cheque is used within a city whereas a demand draft can be issued and cleared in different cities.
  11. The former is always non-negotiable whereas the latter can be.

 

Frequently Asked Questions (FAQ) About Banker’s Cheque and Demand Draft

  1. Can a pay order be canceled?

    A pay order cannot be canceled. A customer or user uses the bank as a medium to pay something for anything which he or she buys or wishes to buy.

    A pay order can be done anytime but one thing should be kept in mind, the funds will only get transferred during the working hours of the bank.

  2. Is the pay order paid in cash?

    A pay order is something that is issued from the bank’s side. A pay order cannot be canceled. A customer or user uses the bank as a medium to pay something for anything which he or she buys or wishes to buy.

    Thus, as the bank is the issuer of the payment order, it cannot be in the form of cash.

  3. How do you use a banker's Cheque?

    A banker’s cheque is a cheque which is acquired from a bank or provided to the bank’s customer for the purpose of remittances.

    The name of the organization to be paid is written, followed by the drawing of extra lines to avoid any further addition by any person.

    The account number and the amount is added. Then the details of the person making the cheque are written at the back.

  4. Can bank drafts be Canceled?

    No, a bank draft cannot be canceled. A bank draft is obtained only after the full payment is received by the bank.

    Thus, in order to cancel this, the person who has issues the draft has to go to the other part, request them to cash the same and tell them to return the cash to you.

  5. How long does a DD take to clear?

    A demand draft is one of the negotiable financial instruments which is issued by the bank to a customer or a client which directs some other ban or branch of the bank to pay a certain sum of money to the party whose name is written on the draft.

    The normal time for clearing a DD varies from half an hour and goes up to 3 working days.

  6. What happens if DD is not used?

    If the demand draft is not used within the stipulated period, then the amount is not transferred automatically in the owner’s account.

    The owner has to go to the back to revalidate the DD and then after revalidation, the DD is again valid for a period of 3 months. Then the DD can be canceled or passed further for the transaction.

  7. Can we deposit DD in any branch?

    Yes, we can deposit the DD of any bank in any other branch of other banks. The process is pretty simple.

    One has to take the DD to the concerned branch available and then give the DD at the counter. The bank will liquidate the DD and give the corresponding amount in cash.

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Conclusion

A banker’s cheque and a demand draft are both instruments to pay money through a bank but the former is more reliable than the latter. This is just because of the chances of bouncing i.e., insufficient funds in the bank account.

Also, a banker’s cheque is issued and withdrawn in the same city whereas a demand draft is issued in one city and can be claimed in another city.

The responsibility of paying money is with the bank in the case of former whereas it is with the account holder in the case of the latter


 

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

The following is a collection of the most used terms in this article on Banker’s Cheque (Pay Order) and Demand Draft. This should help in recalling related terms as used in this article at a later stage for you.

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

 

References

  1. https://en.wikipedia.org/wiki/Banker%27s_draft
  2. https://en.wikipedia.org/wiki/Demand_draft
  3. https://www.econstor.eu/bitstream/10419/57670/1/602139635.pdf

1 thought on “Difference Between Banker’s Cheque (Pay Order) and Demand Draft (With Table)”

  1. I am banker by profession. The difference between Banker’s Cheque (Pay Order) and Demand Draft is shown correctly in the table format above.

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