Of all the ways to pay, cash is still the most common for most day-to-day purchases.
Cash is simple to use, as you can see the money actually being handed over, and it is widely accepted which makes it very convenient, especially for smaller amounts. If cash is lost or stolen however, it is gone forever.
There are some other forms of ‘cash’ payment that are often used for larger sums but they are not as instant as cash. Some examples of these include: cheques; postal orders; and bankers’ drafts.
A cheque is a written order for money to be paid from your bank (or building society) account to another person or company.
Cheques are a useful way to send money by post or to pay someone like a tradesman. Many smaller businesses or sole traders will not accept plastic cards, so in these circumstances cheques can be more convenient than cash, especially if you need to pay a large amount.
Remember that a cheque that you have written might not be paid into someone’s bank account straight away. If you have given someone a cheque, you should therefore keep track of the money in your bank account to make sure that you have enough money in your account to pay the cheque.
Cheques are not as widely accepted in shops as they used to be. Therefore, if you intend to pay by cheque it is a good idea to check with the shop in advance if this will be accepted.
Shops used to always want to see your cheque guarantee card (which guarantees your cheque up to a set amount, usually £50 or £100) at the same time as accepting a cheque, but they do so less nowadays. In any event, cheque guarantee cards are being phased out and will not exist at all after 30 June 2011.
For paying bills by post, cheques are still widely accepted. You should always check the payment terms on an invoice or the back of your credit card or utility bill (for example, gas, water, electricity) for the ways in which you can pay. There may be discounts available with utility bills if you pay using other methods, such as direct debit.
Remember, if you are accepting a cheque as a form of payment you should only accept it from people that you trust, in case the cheque bounces - that is, payment of the cheque is refused because there is not enough money in the payer’s account.
When you pay a cheque into your account, you will start to earn interest on the money after two working days. After four days you will be able to withdraw the money and after six working days you can be sure that the cheque has been paid unless you have been told otherwise.
The Payments Council, the body responsible for how payments work in the UK, has set a target date of 2018 for the closure of the UK’s cheque clearing system.
In the short term, this will have no impact on people using cheques as banks will continue to provide customers with cheque books and cheques will continue to be accepted. Alternatives to using cheques as a form of payment will start to be introduced prior to this date.
Postal orders look quite similar to cheques, however they have the payment amount already printed on them in words and numbers. You can buy postal orders from a Post Office for a small fee.
Like cheques, postal orders can be used to pay bills or send money by post, but with the advantage that the money comes out of your bank account straight away, so you do not have to worry about budgeting for it at a later date.
You can also have the payee name printed on a postal order to make it more secure.
You can cash in a postal order at any Post Office branch up to six months from the date of purchase. Cashing a postal order after this expiry date will be at the Post Office's discretion.
Bankers’ drafts are cheques that are drawn directly on the account of a bank, rather than on your account, but you do need to have the money in your account.
You might use a banker’s draft to pay a large sum of money, such as for purchasing a car, but be aware that most banks charge for this service.
The comfort that bankers’ drafts provide is that it is highly unlikely they would be returned unpaid due to a lack of funds. However, it is important to note that there is no guarantee against fraudulent use, for example they may be lost or stolen and then used fraudulently.