Payorder/Banker’s Cheque

The uncertainty associated with cheque payments makes the mode unacceptable to some entities, such as government departments and institutions . A payorder or the Banker’s cheque is a cheque issued by a bank on itself. Both drawer and drawee is the same bank.

A bank issues a PO after receipt of the money from the applicant. Hence it is certain to be paid because no bank can afford to default on its promise to pay for fear of losing the trust of the public. Bank collects a fee for issuing PO.

Demand Draft

Demand drafts are used when payments have to be made to far away places and the payee insists on certainty of the payment. DDs are cheques issued by one branch of the bank and is payable at another branch of the same bank. At times, banks, which do not have many branches, arrange with other banks to issue DDs on their branches by entering into correspondent relationship with them.

Banks earn a fee on DDs in addition to enjoying cost free float funds before the DDs are encashed at the drawee’s branch.

Travel Card

                A travel card can be said to be a prepaid debit card. A person who does not have a debit or credit card but would like the convenience of a debit or credit while travelling abroad can buy a travel card by paying a certain amount. He can then use the card just like a debit card to make purchase or withdraw cash from ATM up to the amount paid by him.

Credit Card

Credit cards work the same way as debit cards and the process is exactly the same. The only difference is that the customer’s credit card account is debited and not his saving account.

Advantage

The Customer gets some time to pay back the amount to the bank.

The customer’s gets interest-free credit for up to 50 days .For example, the amount of all transactions done between the 1st month and 30th of a month need to be paid only by the 20th of the next month.

Debit Card

Debit card is a substitute for cheques. It is the faster mode of withdrawing cash and for making payments. The bank ensures security by giving confidential Personal Identification Number (PIN) to the customer. The customers enter the PIN in the machine at he time withdrawing the cash.

Debit card can also be used to make payments at shop or restaurants where a Point Sale Terminal (POS) is available. When a merchant swipes the card on the POS and enters the amount of the transaction, the transaction travels , as an electronic message to the bank.  This bank in turn forwards it to the customer’s bank through VISA or MASTER card. Such cards guarantee the payments of all the transactions performed through cards issued by banks affiliated to them.

Instantly the customer’s debited merchant account is credited. The merchant pay a fee to the bank in order to get instant cash. The bank in turn pays a part of the fee to VISA or MASTER CARD, which in turn shares it with the customer’s bank, which has issued the card.

By using debit card, you can

                Verify the balance,

                Order for a cheque book,

                Statement of account.

Debit card with a VISA or MASTER CARD logo can be used at any ATM, any where in the world.

Cheque

Payment services

The various products offered as a part of the payment service are:

                                Cheque

                                Payorder/Banker’s Cheque

                                Demand Draft (DD)

                                Multicity Cheque

                                Electronic Funds Transfer

                                Debit Card

                                Credit Card

                                Travel Card

we will discuss about cheque .

Cheque:

                A Cheque is a written instruction issued by a customer (drawer) to his bank (drawee) to pay a  specified amount to the person named (payee) in the cheque.

Cheque has following characteristics:

•    A cheque is a bill of exchange.
•    A cheque is always drawn on a banker.
•    A cheque is payable on demand.
•    A cheque is an unconditional order.
•    The amount of the cheque must be certain and specific.
•    A cheque must contain the name of person to whom the payment must be made.
•    The payment must be certain and it should not be ambiguous.                               

The following figure represents a specimen cheque .

Date----- Pay -----------------------------------------------------------           -----------------------------------------------------------------------------Or BEARER RUPEES---------------------------------------------------------------------------------------------                                                                                                           RS                                                                                                      THE NEW BANK                                                                    SIGNATURE ADDRESS

Features of Cheque:

Date: Cheque should have certain date. An Undated cheque cannot be paid.
A cheque which is post-dated cannot be paid because the authority to debit the     customer’s account is effective from the date of the cheque only. A cheque which is more than six months old is called a stale cheque and by banking practice such cheques are not paid.

Amount:   The amount in words and figures must be same.

Bearer or Order cheque:   A cheque may be payable to bearer.  If the word bearer cut off, then it is an order cheque. A bank will freely pay cash to the bearer, when it is bearer cheque. In case the word is cut off or the word order is inserted, the bank will ask for the identity of the bearer and only after satisfying about the identity, it will pay cash.

Alteration in a cheque:  If there are alterations, then such alterations should be authenticated under the complete signature of the drawer of that cheque.

                               

                                               

Services offered by banks

The services offered by banks as a financial intermediary are:

• Deposit services
• Loan or credit services

Deposit services:
Bank accepts demand deposits and fixed deposits.
Demand deposits: Demand deposits are repayable on demand. Interest is paid on such deposits at low rate or no interest is paid at all. The cost of maintaining demand deposit accounts is higher than that of fixed deposit accounts in view of the large number of transactions in demand deposits.

Fixed deposits: Fixed deposits are repayable only after the agreed period. Lower the liquidity, higher is the rate of interest.

The various products offered by banks within the deposit services are:

• Current Accounts
• Saving Bank Accounts
• Fixed Deposit Accounts
• Recurring Deposit accounts

Saving Banks Accounts:
These accounts enable the customers to store their surpluses, which are not immediately needed for use. By depositing such surpluses, the customers are able to earn interest and become entitled to certain banking services, such as collection of cheque, remittance facility, and debit card, depending on the product features available by each bank.

Bank imposes certain restrictions regarding withdrawals that can be made from such accounts in addition to stipulating the need to maintain certain minimum balance in the account.
Individual SB account is the only account where the interest payable is uniform across bank and is regulated by the RBI. The interest payable on SB accounts is 3.5 per cent per annum on lowest balance in the account on daily basis.
Generally, trading, business organizations are prohibited from opening such accounts.


Current Accounts (CA):

•  Current accounts are opened to meet the business needs of customers.
•  No restrictions are imposed on the number of withdrawals that can be made from these accounts.
• Banks do not pay any interest on account balances maintained with them.

Fixed Deposit Accounts (FD):


As the name suggests, FD accounts are opened with the banks for certain period, as agreed upon at the time of making such deposits. The customer earn higher rate of interest than SB account. The rate of interest depends upon the period of the deposit.

The interests earned on FD are subject to Tax Deduction at Source (TDS).

Banks grant loans against FDs to their customers to meet their emergency requirements.

Recurring Deposits (RD):
RD accounts are for the benefit of those who would like to save a fixed sum every month over a long period of one to five years. The rate of interest paid on RDs is usually the rate applicable to FDs for similar periods.