Definition
Cheque Types and Clearing
Cheques come in types like bearer, order and crossed, and are cleared electronically through the CTS system.
A cheque is a written instruction to your bank to pay a sum to a named person or bearer. A bearer cheque is payable to whoever holds it, an order cheque to a specified payee, and a crossed cheque (two parallel lines) must be deposited into an account rather than paid in cash, adding safety. An 'account payee' crossing restricts it to the named payee's account.
Cheques are now cleared electronically via the Cheque Truncation System (CTS), where the cheque's image is exchanged instead of the physical paper, speeding up clearing considerably. Post-dated and stale (too old) cheques have their own handling rules.
For large transactions a demand draft or banker's cheque offers guaranteed payment. Understanding crossings and types helps you use cheques securely and avoid frauds like alteration or theft of bearer cheques.
Related terms
- NEFT (National Electronic Funds Transfer)NEFT is an electronic system for transferring money between bank accounts across India, settled in batches around the clock.
- MICR and IFSC CodeMICR and IFSC are codes that uniquely identify bank branches for processing cheques and electronic transfers.
- NominationNomination is the act of naming a person to receive the policy proceeds on the policyholder's death, without transferring ownership of the policy.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.