What is A Cheque and Its Types?

In the era of rising technological advancement, we’ve  all experienced the convenience of cash free transactions with just a tap for successful payments. However, for hefty and bulky payments many of us still prefer using of cheques. Whether for bank to bank transfer or depositing money in the same financial institution, everyone should know the use of cheque along with the types of cheques available to make fluent transactions from place to place. 

If you are new to the  world of finance and are unfamiliar with  types of cheques available at your financial institution you’ve come to the right place. let’s start by understanding the basics.

What is a Cheque Facility?

Despite the increasing popularity of payments cheques continue to serve as an trusted payment option, in certain situations. Lets delve into the details of what is a cheque:
A cheque is essentially a written document that directs a bank to transfer a specified amount of money from the account of the individual issuing the cheque (referred to as the drawer) to the recipient (known as the payee). It functions as a request for the bank to move funds providing an convenient alternative, to carrying large sums of cash.

Types of Cheque

Here are the different types of cheques, each serving a specific purpose:

• Bearer Cheque: These types of cheques can be cashed by anyone, and therefore, are not recommended for use. Anyone holding the cheque can encash it.
• Self Cheque: The self-cheque can be drawn by a person payable to themselves.
• Banker's Cheque: These are issued by the bank itself, guaranteeing the required funds.
• Order Cheque: The order cheque is payable only to the named payee or their endorsed recipient.
• Open Cheque: The open cheque can be cashed by anyone presenting it to the bank. 
• Post-dated Cheque: The post-dated cheque is dated for a future date, instructing the bank to hold payment. These are quite commonly used types in banks. 
• Stale Cheque: A cheque past its validity period (usually 3 months) is no longer valid or stale cheque.
• Crossed Cheque / Account Payee Cheque: These cheques can only be deposited into the payee's account, enhancing security.
• Traveller's Cheque: These cheques are a secure method of carrying cash while travelling, often used internationally.
• Blank Cheque: A cheque with some essential details missing, to be filled later. These can be filled with all details except the amount. 
• Mutilated Cheque: These are generally damaged cheques that may require a replacement for encashment.

Read Also: Guide to Cancelled Cheques: Writing, Uses, and Examples

Anatomy of a Cheque

A cheque includes the following details:

1. Drawer's Name And Account Number: It refers to the person who issues the cheque (drawer) and their associated bank account number. 
2. Date: The date indicates when the cheque was written or issued.
3. Payee's Name: This is the name of the person or entity to whom the cheque is payable. 
4. Amount (Written In Words And Numbers): The amount is written twice on the cheque: once in words and once in numbers. 
5. Drawer's Signature: The signature of the drawer (issuer) on the cheque verifies that the issuer authorises the payment.
6. Bank Code And Branch Details: These details identify the bank and specific branch from which the cheque is drawn. 
7. Micr Code (Magnetic Ink Character Recognition Code): The MICR code is printed using magnetic ink. It includes information such as the bank code, account details, and cheque number. 

The Role of Cheques Today

Cheques are essential to the banking sector because they enable transactions without using currency. They offer a safe and transparent means of moving money across accounts. Despite advancements in digital technologies Cheques are still used for  various of transactions, such as paying bills, rent, or business expenses. . When digital payments aren't possible, cheques can be useful since they provide a physical record of the payment. They remain valuable for certain financial need and can be reliable payment method in specific circumstances.

Essentials of a Cheque

For a cheque to be valid, ensure it has the following:

• Drawer's signature
• Payee's name
• Date
• Amount (written clearly and consistently)
• No major alterations or damage

What are the Uses of Cheques?

Cheques can be used for various purposes, including:

• Paying Bills

It can be used for paying bills on time to avoid late penalties for goods, services, or utilities that have been acquired.

• Moving Money Between Accounts

Transferring money between bank accounts, whether they are located in the same bank or separate ones. 

• Safeguarding Deposits (Such As Rental Deposits)

In order to guarantee landlords' financial commitment, you can use a cheque to make the rental payments. 

How To Pay Off Personal Loan Instalment Using A Cheque?

If you have recently applied for a personal loan online or are planning to do so, then it is important to know that you can pay off a personal loan instalment by writing a cheque payable to the lender and mentioning your loan account number on the memo line. You can submit the cheque directly to the bank easily and pay your instalment confidently and securely. 

Conclusion

Even in today's digital era, cheques remain a reliable and secure way to conduct financial transactions. They give a sense of security and a physical record of payments, which is especially useful for larger transactions when electronic methods might not be preferred. 

Frequently Asked Questions

What Is The MICR Code? 

It is a magnetic code on the cheque, which is used for electronic processing at banks. 

What Is The IFSC Code On A Cheque? 

IFSC, or Indian Financial System Code, helps in identifying the bank and branch.

What Is The Validity Of A Cheque? 

It is generally 3 months from the date of issue.

Can A Torn Cheque Be Deposited? 

No, banks may refuse torn cheques. It's best to request a replacement from the drawer.

Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.