A bank is the issuing authority of a banker’s cheque. Popularly referred to as a banker’s draft, a bank issues it on behalf of the person who holds an account with the bank. The cheque is issued to meet a payment obligation to the beneficiary residing in the same city. The sum indicated on the cheque is first debited from the individual’s account, after which the bank issues the cheque. The validity of such cheques extends up to three months and cannot be dishonoured. It is why they are also referred to as non-negotiable financial instruments. A payee can request for revalidation of a banker’s cheque. However, this can be done only once and across a period of 365 days from the date on which the cheque was issued. A banker’s cheque clearing time does not exceed more than twenty-four hours after being deposited.
Did you know?
A banker’s cheque is also known as a banker’s draft.
What is a Banker’s Cheque?
A banker’s cheque involves a bank writing a cheque on your behalf. You provide the cash to the bank or allow the bank to debit your account (if you hold an account with the bank). The bank issues a cheque for the specified amount of cash you pay to it. You can then forward this to the recipient. These cheques involve money transfers within a limited territory, e.g., a town or city. The recipient can get the cheque cleared in any other branch of the same bank which has issued it. This type of cheque is valid for 90 days from the date it is issued. If the cheque is not cleared within three months, it becomes invalid.
Features of a Banker’s Cheque
Most individuals get confused between a banker’s cheque and a demand draft. Let us draw a parallel to understand the difference between the features of these two monetary instruments.
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Banker’s Cheque |
Demand Draft |
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This cheque is issued by a bank on behalf of either an account holder or a person who gives the bank a specific amount of money based on which the bank issues the cheque. This type of payment is limited to the territorial region of one city or town only. |
A Demand draft is a financial instrument to make a payment to a recipient residing in another city. |
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A banker’s cheque is a non-negotiable financial instrument. |
A demand draft is negotiable. |
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All banker’s cheques come printed with the words, non-negotiable. |
Demand drafts are issued with the words A/c payee written across the two parallel lines drawn across the top left corner of the cheque. |
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You can get a banker’s cheque cleared in any branch of the bank which has issued it but of that specific city or town. |
You can get a demand draft cleared across any bank branch that has issued it across the country. |
Despite the above distinct features, both these financial instruments bear many common features:
- They both involve making payments towards financial obligations.
- The individual making the payment does so in advance to the bank.
- Both include a prepayment clause which leaves no room for them to be dishonoured.
- Both these monetary instruments are valid only for a time frame of 90 days (3 months).
Also Read: Learn All Necessary Information About Cross Cheques
Why Do People Use Cheques?
To understand the reasoning behind the usage of cheques, even today, let us first understand the different types of cheques. Our lives revolve around digitisation, but most individuals prefer to make payments through cheques when it comes to making payments.
There are multiple reasons for this:
- Cheque payment is more secure than a cash payment. It is proof of the payment that is made.
- Cash payments can be denied by the recipients, whereas cheque payments are recorded in the books of accounts of every bank. The records are maintained physically and digitally with a regular backup of all financial transactions.
- Cheques serve to validate payments made and payments received in every type of business and a personal transfer of payments.
What Are the Other Kinds of Cheques?
The various types of cheques are as follows:
Self-Cheque
This type of cheque is unique because the receiver and the payment maker are the same.
You often resort to this when you wish to avail cash from your account. This type of cheque involves writing the word ‘Self’ in the section that demands the name of the person withdrawing cash. You have to ensure that such a cheque does not fall into the wrong hands as whoever lays hands on it will take advantage of it.
Account Payee Cheque
This type of cheque is also known as a crossed cheque. On the top left side of the cheque, you draw parallel lines within which you write the words account payee. It is one of the most secure ways of making a payment to someone. Only the person whose name you have written on the cheque will be able to clear it.
Open Cheque
This type of cheque is a single leaflet of a cheque book. You can obtain payment or deposit in your account. You can also make a payment to someone via this type of cheque.
Traveller’s Cheque
This is a very useful type of cheque which is ideal for overseas trips. Instead of carrying cash, you can use these cheques and encash them whenever required.
Also Read: Know All About What Is a Cheque Leaf
Bearer Cheque
This type of cheque has the word ‘bearer’ written in the space for adding the recipient’s name. The person encashing the bearer cheque receives the payment on behalf of someone unable to do so in person.
Post-dated Cheque
The Post-dated cheque includes a date for making a payment in the future. It has a validity of 90 days from the date of being issued.
Conclusion
The digital world enables us to make monetary transfers through bank applications on a mobile or website, yet several individuals continue to use cheques to make payments. We hope this article has given you some idea of what a banker’s cheque entails and its features.
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