In today’s fast-paced world, many people—especially beginners—don’t fully understand what a bank draft is or when to use it.
However, when it comes to large payments or securing sufficient funds for significant transactions, choosing the right payment method is crucial.
Whether you’re buying a car, making a down payment on property, or handling international transactions, a bank draft (BD) can offer a secure and reliable option, guaranteed by the issuing bank.
This guide will explain how BD work, the fees involved, and how they compare to other secure payments like money orders.
All About Bank Drafts!
What Is a Bank Draft?
A bank draft is a payment method guaranteed by the issuing bank, ensuring the payer’s account has sufficient funds.
Once the draft is requested, the money is moved to the bank’s reserve account until it’s cashed by the person receiving it. This makes it a safer option than personal checks for large purchases or transactions.
Key Takeaways
- Bank drafts provide a guaranteed form of payment backed by a financial institution.
- They are used for large payments like home down payments or international transactions.
- The issuing bank charges a cheque processing fee for providing a draft.
- Sellers may request a BD when they don’t have an existing relationship with the buyer.
How Bank Drafts Work
When you request a bank draft from a financial institution like a credit union, the bank checks if there are sufficient funds in your account.
The bank then moves the money into its internal account and issues a draft. The draft includes details like a serial number and watermark, making it a secure paper document.
BD are also known as bank checks, teller’s checks, or banker’s drafts.
These are often required for large purchases, such as property or a car.
In some cases, a post office can also issue secure money orders, but BD typically cover larger amounts.
Bank Draft vs Money Order
Both bank drafts and money orders are considered safe methods of payment. However, there are differences.
A money order is purchased with cash or a debit card and used for smaller payments, whereas a bank draft is drawn on the bank’s accounts.
The fee for a bank draft may be higher than a money order due to the larger sums involved.
When you buy a money order, you can do so at certified stores or a post office, but a bank draft must be obtained from a financial institution. For international transactions, bank drafts can be used to deal with foreign currencies, and unlike money orders, BD have no such limit on the amount.
Cancelling a BD
Unlike regular personal checks, canceling a bank draft can be tricky. Once issued, some banks won’t allow a stop payment.
However, if the draft is lost or stolen, you can request a new draft, but you may need to sign an indemnity form or provide a surety bond.
Fees and Costs
Obtaining a BD usually involves a fee. Banks might charge a flat fee or a percentage of the amount on the draft.
For instance, TD Bank charges a flat fee of $9.95. High-net-worth individuals or those with good relationships with the bank may enjoy free BD.
Keep in mind, fees can vary depending on the amount and financial institution.
What’s the Difference Between a BD and a Certified Check?
Both a bank draft and a certified check are guaranteed by a bank.
However, with a certified check, the money stays in your bank account until the check is cashed. With a bank draft, the funds are withdrawn immediately.
A certified check may also be preferable if you want more control over when the funds are moved.
When Can You Use a BD?
Bank drafts are ideal when making large purchases or when a buyer wants to ensure the seller is confident about receiving the funds.
For example, if you’re buying a car or property, a BD may be necessary. You may also encounter additional fees or a cheque processing fee based on the bank you’re working with.
In essence, a bank draft is a game-changer for large transactions and international deals. It offers guaranteed funds and unmatched security, making it an exciting option for significant purchases. Despite some fees, its reliability ensures you can make big moves with confidence!
Did you know that bank drafts are a secure way to handle property investments?
Start exploring property options today and see how smart investments can lead to a rewarding future!
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