Difference Between Pay Order and Demand Draft?

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If you are new to the banking world you might struggle understanding a few terms. While you may have the option of doing an NEFT and RTGS, in certain instances you might end-up doing a pay order or a demand draft. It is hence imperative to understand the difference between the two.

Individuals who are new to the manual or physical banking must be wondering the difference between pay order and demand draft as both serve the same purpose. And another confusion would be which one to use and when?

Here is a simple difference between pay order and demand draft and which one to use and when.

Demand Draft (DD)

Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank acts as guarantor to make payment in full when the instrument is presented. DD cannot be dishonored as the amount is paid before hand.

Demand draft is usually used to make payment outside a city. Demand Draft can be cleared at any branch of the same bank. A demand draft of value Rs 20,000 or more can be issued only with A/c payee crossing.

Pay Order or Banker's Cheque

The payment order is a financial instrument issued by the bank on behalf of customer stating an order to pay a specified amount to a specified person within the same city.

In payment order is pre-printed with the word "Not Negotiable" . There is no chance of dishonoring as the amount is prepaid. Once issued Pay order will be valid for 3 months.

Instruments Pay Order Demand DraftPurposePay order is an instrument used to make payment within the same cityDD is used to transfer money by an individual from one city to another person in a different city.FeaturePay order are pre-printed with "NOT NEGOTIABLE".Demand Draft is a negotiable instrumentClearancePay order to be cleared in any branch of the same city.DD can be cleared at any branch of the same bank.

Conclusion

Both the financial instruments are a secure mode of payment to third party. Many schools and colleges prefer these instruments than cheques as there is no possibility of bouncing of the same.

Why is nomination necessary in bank accounts?

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Nomination is a must when it comes to all forms of bank accounts and even fixed deposits. If there is a nomination, bank would simply pay-off the amount in the balance of the deceased's account to the nominated person.

This means that banks would not ask for succession certificate or other documents to verify claims of legal heirs. Please remember, that a death certificate is a must in every case. 

Nomination facility simplifies the procedure for settlement of claims of deceased depositors as banks get the authentication to whom dues should be paid.

However, nomination facility is not mandatory while opening accounts or fixed deposits or locker. Hence, investors should insist for a nomination form as this would make life simpler for the person inheriting the deposits or account of the deceased. 

Nomination can be done by just filling the form and submitting to your respective bank. A nominee could be anyone who is financially trustworthy, can be a family member, relative or friend.

One can even nominate a minor, provided the guardian will sign on behalf of the minor nominee and in addition there should be a name and photograph of the nominee along with the name, address and the photograph of the guardian.

With nomination

The balance outstanding will be paid to the nominee on verification of his/her identity (such as Election ID Card, PAN Card, Passport etc.) and proof of death of depositor.

Without Nomination

The balance outstanding will be paid to the legal heirs (or any one of them as mandated by all of the legal heirs) on verification of the authority of the legal heirs and proof of death of depositor. 

Features of nomination

Bank offers nomination facility in deposit accounts, safe deposit lockers, articles in safe custody, etc. Nomination can be made in favour of one individual only.Nomination so made can be cancelled or changed by the account holder/s any time. Nomination is also available to a sole proprietory concern account. A non - resident can be nominated as a nominee in a resident account.Only one individual can be nominated for one account.

(The writer Mr.K N V PRABHU, a retired banker, is with ICICI Manipal Academy, Bengaluru)

💓 Thanks and wishes to My Guru Mr.K N V PRABHU for all such dedication.

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IBPS Common Recruitment Process For Recruitment Of Clerks

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Online Registration Date: 11-Aug-2015 to 01-Sep-2015

Online Exam - Preliminary Date:
05-Dec-2015 to 13-Dec-2015

Online Exam - Main Date: 02 & 03 Jan-2016

Conduct of Interview: Feb-2016

Eligibility :
Age: 20 - 28 years
Relaxation :
SC - ST: 5 years
OBC: 3 years

Education Qualifications : Any Graduate

Preliminary Exam :
1. English Language
30 Questions 30 Marks
2. Numerical Ability
35 Questions 35 Marks 3. Reasoning Ability
35 Questions 35 Marks Total 100 Questions 1 hour

Main Exams :
1. Reasoning 40 Marks
2. English Language 40 Marks
3. Quantitative Aptitude 40 Marks
4. General Awareness 40 Marks
5. Computer Knowledge 40 Marks
Total Marks 200 & 2 Hours

Website:
www.ibps.in

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