A cheque, typically employed for substantial payments, serves as a written order issued by either an individual or an organisation, instructing a bank to transfer funds from the sender's account to another designated account. This method provides a recorded transaction history with the bank, ensuring that it is reflected in your bank account. But what is a cheque exactly?
Understanding a cheque
A cheque represents a physical document that functions as a directive for a bank to execute the transfer of funds from the sender's account to another specified account. This instrument is made available to both current and savings account holders, facilitating convenient money transfers, whether within the same bank or to external accounts. In the realm of commerce and small-scale enterprises, cheques are a prevalent means of financial transaction.
These financial instruments fall under the purview of the Negotiable Instrument Act of 1881, classifying them as negotiable instruments. A typical cheque transaction involves three key parties: the drawer, the drawee, and the beneficiary or payee. The drawer, the issuer, drafts the cheque in favour of the beneficiary, essentially requesting the bank to transfer the specified amount to the beneficiary's account from their own. In this transaction, banks act as the drawee of the cheque payments.
Types of cheques
A cheque is a written document that you can provide to your bank, instructing it to make a payment of the stated amount in both numerical digits and written words to the person whose name appears on the cheque.
In the realm of banking, a cheque is classified as a negotiable instrument. In simple terms, a negotiable instrument is a document that commits to pay the specified amount either upon presenting the document to the bank or by a specified date.
Kotak811 offers a range of banking services, including a current/cheque account, fixed deposit, and savings account, all tailored to meet your personal banking requirements.
Now, let's get into the different types of cheques based on key factors, such as the issuer and the drawee, as they influence the cheque's characteristics in India.
1. Bearer cheque
A bearer cheque is one where the payment is made to the individual presenting or carrying the cheque. These cheques are transferable upon delivery, meaning if you physically possess the cheque and take it to the bank, you can receive the payment without any additional authorisation from the issuer. To identify a bearer cheque, look for the words "or bearer" printed on it.
2. Order cheque
Order cheques have the words "or bearer" cancelled. Such cheques can only be issued to the person whose name is mentioned on the cheque. The bank verifies the bearer's identity before releasing the payment.
3. Crossed cheque
A crossed cheque is a particular type of cheque where the issuer draws two slanted parallel lines on the upper left corner of the cheque and includes the phrase "a/c payee." Crossed cheques feature two diagonal parallel lines with that written on the top left. These lines ensure that the payment will only be made to the individual whose name appears on the cheque, along with their account number. A crossed cheque offers an added layer of security as it can only be cashed at the payee's bank.
4. Open cheque
Conversely, an open cheque does not feature crossed lines and is therefore often referred to as an uncrossed cheque. An open cheque can be cashed at either the payer's bank or the payee's bank. Furthermore, it is transferable by the payee, allowing them to designate another individual as the payee. To complete the process, the issuer of an open cheque is required to sign on both the front and back of the cheque. An open cheque is essentially an uncrossed cheque that can be encashed at any bank. Payment can be made to the bearer, and the cheque is transferable from the original payee to another. The issuer must sign both the front and back of the cheque.
5. Post-dated cheque
A post-dated cheque bears a date that is later than the date of issuance. It can only be cashed after the specific date indicated by the payer. While the post-dated cheque remains valid after the mentioned date, it cannot be processed by the bank until that date arrives. These cheques bear a future date for encashment. Even if presented to the bank immediately after issuance, the bank processes the payment only on the specified date. The cheque remains valid after the mentioned date, but not before.
6. Stale cheque
A cheque becomes stale when it surpasses its validity date, which is typically three months from the date of issue.
7. Traveler's cheque
Traveler's cheques are used by foreign travellers as an alternative to carrying cash. These cheques are issued by one bank and can be exchanged for currency at banks in other locations or countries. They have no expiration date and can be used for future trips.
8. Self cheque
A self-cheque contains the word "self" as the payee and is used by the issuer to withdraw money from their own bank account. These cheques can only be cashed at the issuer's bank.
9. Banker's cheque
A banker's cheque is issued directly by the bank itself. Banks typically issue banker's cheques on behalf of an account holder to facilitate payments to another individual within the same city. The specified amount is debited from the customer's account, and the bank then issues the cheque. Banker cheques are considered non-negotiable instruments, as banks must honour them. They typically have a validity period of three months, although they can be revalidated under specific conditions.
Conclusion
That covers the various types of cheques you can issue and receive. If you'd like to explore more about cheques, visit the Kotak811 website for in-depth explanations about the different cheque options they provide. You should open the zero balance savings account offered by Kotak811 as it has multiple features and is super easy to open. For additional information on applying for new products and opening accounts, feel free to get in touch with Kotak811 Bank Customer Service.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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