3.4 The old-school Banking.

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

1.Cheques

 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 cheques leaf, and the bunch of leaves bound together would make it a cheques book. A cheques is a document ordering the bank to pay the requested sum of money to the concerned person. 

 Understanding cheque

A cheque is a document ordering the bank to pay the requested sum of money to the concerned person.

One can deposit a cheque into bank accounts to whomsoever the payment is to be made. The person from whose account the payment is made is called a drawer, and the person to whom the payment is made is called the payee. The money from the cheque’s drawer’s account will be transferred to the person’s account in whose name the cheque is made.

The bank performs these processes. 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 when the drawer/anyone presents the cheque to the drawer’s bank.  If the account’s balance is not sufficient in the payee’s account, it will be dishonoured and returned. This situation is also called the bouncing of cheques, and it is considered a criminal offence.

ACTIVITY:

Write a cheque to your sibling for the transfer of your pocket money. 

  • 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.

  • Banker’s Cheque

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.

  1. 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. The person requires an ATM pin to access the card.

  1. Credit Cards 

Credit cards look similar to debit cards. The main difference is that payments are not deducted immediately. As the name suggests, credit means loan. The customer has to settle the monthly bill of all the expenses put together. The failure to pay the bill amount on time may result in high penal interest being charged on it.

 

                             The difference between credit and debit cards 

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.

THINK ABOUT IT!

How many debit or credit cards do you or your parents hold? When was the last time you used debit/ credit cards?