Paper notes or the coins, which we handle are known as 'Standard Money'. Apart from this type of money, we also handle 'Bank Money'. You must have handled cheques & demand drafts. These are called 'Bank Money'.
What exactly is the meaning of a cheque?
It is an important banking document. It is like a letter written by the account holder to his bank. What does this letter contain? It includes some instructions which the account holder gives to his bank.
With a cheque, one can instruct/order your bank to pay money from his/her bank account to another person. e.g. Ramesh has a bank account in the State Bank of India. He gives a cheque of Rs. 10,000 to Suresh. What does this mean? It means that Ramesh has written a letter to his bank. In this letter, he has given instructions to his bank (SBI) to pay Rs. 10,000 from his account to Suresh.
For any type of cheque, 3 persons are required. They are:
1) Payer - The person who issues the cheque i.e. Ramesh
2) Payee - The person to whom the payment is made
3) Drawee - The bank i.e. SBI
It is important to know these terms. They appear on the cheque. (Please see the picture above)
What is the importance of a cheque?
Most importantly, it is not necessary to handle the cash when a cheque is issued. Also, the transaction (व्यवहार) gets recorded in the bank passbook. Therefore, we can also refer to the transaction details in future also.
Is the cheque valid all the time?
No, a cheque is valid only for 3 months. 3 months from the date on which it is issued. If this period lapses then such a cheque is called 'stale cheque'.
Are there different types of cheques?
Yes, following are the types of cheques
1) Bearer cheque - Bearer means a person who holds the cheque in his hands. The bank gives the money to the person who holds the cheque. Have you seen the word "Or Bearer" on a cheque? Please see the picture above. When one issues a bearer cheque, he does not strike off these words.
E.g. Ramesh issues a bearer cheque of SBI to Suresh. How will Suresh get money out of this cheque? Suresh will go to SBI & show it at the cash counter. SBI will ask for some identity proof, signature, etc. to ensure that the person at the counter is Suresh only. Once this is done, Suresh immediately gets the money from SBI at the counter itself!
Is it risky? Yes. What will happen if Suresh loses it? Any person who finds it can get it encashed at SBI by fraudulent means.(showing wrong identity as that of Suresh)
How to avoid the risk? - Unless there is some compulsion, avoid issuing bearer cheqes, strike off the words 'Or Bearer". Issue a crossed cheque.
2) Crossed Cheque - To cross means to draw two parallel lines at the left hand side top corner & to strike off the words 'Or Bearer'. Between the parallel lines, generally the words 'a/c payee' may be written.
If Ramesh issues a crossed cheque of SBI to Suresh, then Suresh will deposit it into his own bank account (say HDFC Bank). HDFC Bank will send the cheque to SBI for its information & necessary action. SBI will then give the amount from Ramesh's account to HDFC Bank. This amount will be desposited into HDFC Bank account of Suresh.
Is it safer than a bearer cheque? yes, because this is a bank to bank transfer. Nothing happens at the cash counter.
3) Post dated cheque - When the amount is to be paid to a person in future, (say a month) then a post dated cheque can be issued. The date of payment (after 1 month) is written on such a cheque. Such a cheque is given to the payee today but payable only on the future date mentioned on the cheque.
These are typically issued while paying EMIs etc.
4) Self Cheque - When an account holder wishes to withdraw money from his own account, he can issue a cheque to himself. The name of the payee is written as 'Self' on the cheque.
Due to ATMs, these cheques have practically become redundant (not useful)
6) Yourself Cheque - When an account holder wants to issue a cheque to his bank itself, then such a cheque is issued. E.g. Ramesh has bank account in SBI & wants to invest Rs. 10,000 in Fixed Deposit of SBI itself. Ramesh will issue SBI cheque of Rs. 10,000 to SBI itself! Therefore the name of the payee is written as 'Yourself' on the cheque.
Have you heard the word 'CTS'?
W.e.f. (With effect from) 1.4.2013, RBI has started a new Cheque Truncation System (CTS). When there are bank to bank handling of cheques (see example of crossed cheque above), the banks will not physically move the cheques. They will scan the same & complete their transactions through internet.
This will save time. Money can be transferred from one bank to the other within a day or two.
Please Remember - Since image of the cheque is scanned, it is very important that we do not fold, scratch, spoil the cheque (especially at the place of signature)!
