Cheque is an important document that an individual, companies, governments and many others use to transact their business. By definition, cheque can be termed as a negotiable document to transfer money either in physical form or to effect inter account transfer.
Unless or otherwise stated, a cheque is a signed unconditional order addressing the bank to credit it by the issuer. The issuer of the cheque will have an account with the bank to which it is connected. The account can be either savings type or a current account. A cheque transaction is one of the safest ways of conducting the business because it leaves an entry against the cheque honoured by the bank in the banking transactions conducted by you which can be traced back in case of necessity. There are various types of cheques and various ways of issuing a cheque.
Different types of cheques based on methods of issuing
Open cheque or bearer cheque: The issuer of the cheque would just fill the name of the person to whom the cheque is issued, writes the amount and attaches his signature and nothing else. This type of issuing a cheque is also called bearer type cheque also known as open cheque or uncrossed cheque. The cheque is negotiable from the date of issue to three months. The issued cheque turns stale after the completion of three months. It has to be revalidated before presenting to the bank.
A crossed cheque or an account payee cheque: It is written in the same as that of bearer cheque but issuer specifically specifies it as account payee on the left hand top corner or simply crosses it twice with two parallel lines on the right hand top corner. The bearer of the cheque presenting it to the bank should have an account in the branch to which the written sum is deposited. It is safest type of cheques.
A self cheque: A self cheque is written by the account holder as pay self to receive the money in the physical form from the branch where he holds his account.
Pay yourself cheque: The account holder issues this type of crossed cheque to the bank asking the bank deduct money from his account into bank’s own account for the purpose buying banking products like drafts, pay orders, fixed deposit receipts or for depositing money into other accounts held by him like recurring deposits and loan accounts.
Post dated cheque (PDC): A PDC is a form of a crossed or account payee bearer cheque but post dated to meet the said financial obligation at a future date.
Various types of cheques based on their functionality
Local Cheque: A local cheque is a type of cheque which is valid in the given city and a given branch in which the issuer has an account and to which it is connected. The producer of the cheque in whose name it is issued can directly go to the designated bank and receive the money in the physical form. If a given city’s local cheque is presented elsewhere shall attract some fixed banking charges. Although these type of cheques are still prevalent, especially with nationalised banks, it is slowly slated to be removed with at par cheque type.
At par cheque: With the computerisation and networking of bank branches with its headquarters, a variation to the local cheque has become common place in the name of at par cheque. At par cheque is a cheque which is accepted at par at all its branches across the country. Unlike local cheque it can be present across the country without attracting additional banking charges.
Banker’s cheque: It is a kind of cheque issued by the bank itself connected to its own funds. It is a kind of assurance given by the issuer to the client to alley your fears. The personal account connected cheques may bounce for want of funds in his account. To avoid such hurdles, sometimes, the receiver seeks banker’s cheque.
Travelers’ cheques: They are a kind of an open type bearer cheque issued by the bank which can be used by the user for withdrawal of money while touring. It is equivalent to carrying cash but in a safe form without fear of losing it.
Gift cheque: This is another banking instrument introduced for gifting money to the loved ones instead of hard cash.
Cheques per se have been around since the inception of banking system. The cheque transactions are one of the safest ways of conducting business. Although cheque is going to be still the mainstay of banking transactions, it leaves a good amount of paper usage. With net banking becoming popular and made secure, more and more people are looking forward to transacting their business using net banking. ATMs are slowly replacing the self cheques for withdrawal of money. Post dated cheques are getting replaced by periodic electronic clearing instructions.