2.4 Traditional Transactional Banking Products and Services
You saved excess money in your piggy bank. But how do you retrieve money when you need it? You break the piggy bank to do so. Similarly, in your daily life, you will need to make payments like school fees, purchase of stationery, groceries, etc. You can use these different modes to make payments through your bank account without breaking it like your piggy bank.
You would have observed your parents writing on a short, wide rectangular piece of paper, tearing it off a book, and handing it over to someone to pay for something. That would most likely be a cheque leaf, and the bunch of leaves bound together would make it a cheque book.
A cheque can be deposited into the person’s bank account to whom the payment needs to be made. The money from the cheque’s drawer’s account will be transferred to the person’s account in whose name the cheque is made, called the payee. This process is performed between the banks. The payee can directly get the money in cash if the drawer has not explicitly instructed the bank to process payment through bank transfer. This instruction, known as crossing, is done by drawing two parallel lines on the cheque’s top-left corner. Cheques can be drawn for any amount irrespective of the balance in the account. The payment takes place only when the cheque is presented to the drawer’s bank for payment. If the account’s balance is not sufficient when the cheque is given, it will be dishonoured and returned. This situation is also called the bouncing of cheques, and it is considered a criminal offence.
Demand Drafts (DDs)
DDs are pretty similar to cheques. However, there are some differences. The bank makes DDs at the customer’s request. The amount is deducted from the customer’s account immediately. Therefore, there is virtually no risk of bouncing due to insufficient funds. That is primarily why institutions like your educational institute prefer fee payments through DDs instead of cheques.
They’re also known as manager’s cheques and function like DDs. While DDs can be presented for payment across the country, banker’s cheques can be submitted only in the city where they have been drawn.
ATM cum Debit Cards
You must have come across a plastic card that is generally tapped or swiped in small, hand-held machines to make payments or inserted in Automated Teller Machines (ATMs) to withdraw cash. That would be the ATM cum Debit card. The payment through this mode is immediate, with the amount getting deducted from your account.
Credit cards look similar to debit cards. The main difference is that payments are not deducted immediately. The customer has to settle the monthly bill of all the expenses put together. Due to its nature, a credit card is a form of a loan. The failure to pay the bill amount on time may result in high penal interest being charged on it.
Although all these modes of payment have been around for a long time, they continue to help us use the banking system for most of our daily financial needs. However, there are quicker and more convenient transaction modes available today.
Ask your parents to teach you how to write a cheque the next time you see them doing so.