Question

What is the difference between ‘Cheque’ and ‘Demand Draft’? (Any two points)

Hint:

Remember: A cheque can bounce — a demand draft never bounces because the bank guarantees it.

Answer 1

A cheque and a demand draft are both instruments used for transferring money, but they have important differences.
1) Who Issues It: A cheque is issued by an account holder, meaning any person who has a bank account can write a cheque.
A demand draft, however, is issued by the bank itself on the request of the customer and is guaranteed by the bank.
2) Possibility of Dishonour: A cheque can be dishonoured or bounced if the account does not have enough balance or due to signature mismatch.
A demand draft cannot be dishonoured because the amount is paid to the bank in advance when the draft is made.
These differences make a demand draft a safer mode of payment for large sums compared to a cheque.