bank draft

  1. How do international bank drafts work? |
  2. What is a bank draft?
  3. How does a bank draft work?
  4. How do I cash a bank draft?
  5. How to compare bank drafts
  6. Pros
  7. Cons
  8. Is using a bank draft my best option?
  9. Using a bank draft to pay someone internationally
  10. Frequently asked questions
  11. What is a Bank Draft?
  12. How To Get One
  13. How To Cash One
  14. Uses
  15. Advantages
  16. Authenticity
  17. International Transfers
  18. Automatic Bank Drafts
  19. Cashier's Checks and Certified Checks
  20. How to use banker’s drafts and cheques
  21. How can you use a cheque?
  22. Cheque writing basics
  23. Cheque imaging
  24. When does the money leave/ enter your account?
  25. Stopping a cheque
  26. Post-dated cheques
  27. What is a banker’s draft?
  28. When should you use one?
  29. Using banker’s drafts and cheques safely
  30. Bank Draft vs Certified Cheque | Top 5 Best Differences (With Infographics)
  31. Bank Draft
  32. Certified Cheque
  33. Head to Head Comparison between Bank Draft vs Certified Cheque (Infographics)
  34. Key Differences between Bank Draft vs Certified Cheque
  35. Bank Draft vs Certified Cheque Comparison Table
  36. Conclusion – Bank Draft vs Certified Cheque
  37. Recommended Articles
  38. Bank Draft (Meaning, Examples) | Top 3 Types of Bank Drafts
  39. Types of Bank Draft
  40. #1 – Money Orders
  41. #2 – Demand Draft
  42. #3 – Certified Checks
  43. Example #1
  44. Example #2
  45. Disadvantages
  46. Conclusion
  47. Bank Draft — Overview, How It Works, Advantages, & Disadvantages
  48. How Does It Work?
  49. Can a Bank Draft be Canceled?
  50. 1. Guaranteed availability of funds
  51. 2. More convenient
  52. 3. Can be used for cross-border purchases and investments
  53. 1. Cannot be canceled after delivery
  54. 2. Subject to fraud
  55. Additional Resources

How do international bank drafts work? |

bank draft

Similar to a cashier’s check, bank drafts are typically used for large payments overseas. Although it isn’t the quickest way to send money, bank drafts are accepted in most countries and still used frequently.

Looking for a faster way to send money? Compare money transfer services

What is a bank draft?

A bank draft is a payment issued by a bank on behalf of the payer, which allows another bank to draw funds directly from the bank issuing the draft. International bank drafts are often used for remittances because the bank draft is immediately converted into a foreign currency when it’s created, un a regular check.

Bank drafts are often confused with cashier’s checks and money orders, but have key differences that give bank drafts the advantage when used for international transfers:

  • Exchange rate. Bank drafts are exchanged immediately when they’re created. Going to your bank and creating a bank draft for €100 will use that day’s exchange rate, while a money order or cashier’s check will use the exchange rate when it’s cashed — which could lead to less money being sent if the exchange rate shifts heavily.
  • No limits. Bank drafts have no limits. Money orders are usually limited to $1,000, depending on the business you’re purchasing them from.
  • Typically safer. Many money scams involve fake money orders and cashier’s checks, the former of which is difficult to verify. Bank drafts can be verified by contacting the issuing bank and providing the details on the bank draft itself.

How does a bank draft work?

A bank draft is effectively a check from a financial institution. This means the funds for the transaction are withdrawn from the institution rather than from the check drawer’s account.

This offers an important benefit over an ordinary check from an individual. The funds from a normal check are not withdrawn from the drawer’s account until the check is cleared, which means there may not be sufficient funds available when the check is cashed and it may therefore bounce.

With a bank draft, however, when a person requests one they must immediately transfer the funds from their account to cover the amount of the check. This adds a crucial extra level of security over a normal check.

Drafts can be drawn in the foreign currency you choose and are available for personal or business use.

Let’s say you need to send $1,000 to family in Mexico. Here’s what you might face as far as costs when using a bank draft compared to an international money transfer as of September 14, 2020.

Fee$0$30 + receiving bank fees
Exchange rate1 USD = 21.035 MXN1 USD = 19.933 EUR
Transfer speed1-2 days1-3 weeks, depending on mail
Amount receivedMXN 21,035MXN 19,335
  • Slower and more expensive

The bank draft ends up being the slowest and gets the smallest amount of money to your recipient in Mexico.

If you go with the money transfer service, your recipient ends up with MXN 1,700 more than the bank offers.

If speed is crucial, a cash transfer can typically have your transfer to MExico in as little as 15 minutes — just make sure there’s a cash pickup location near your recipient before sending.

How do I cash a bank draft?

Bank drafts are cashed just any other check, but must be deposited into your bank account. Cash your bank draft in a variety of ways, including:

  • At the bank. Bring your bank draft to your bank, along with photo identification, and ask the teller to deposit it into your account.
  • At an ATM. Many banks allow you to deposit bank drafts at ATMs, as long as you hold an account with the bank. However, funds may not be immediately available when depositing your bank draft at an ATM.
  • Check cashing store. Some check-cashing stores may be able to turn your bank draft into cash, but if it’s an international bank draft, chances are slimmer. Use this option as a last resort because it has the lowest chance of success.

How to compare bank drafts

  • Fees. This is the most important factor to look at when comparing bank drafts. Look at the different fees charged for obtaining a draft and see if you could save money with a different provider.
  • Available currencies and countries. Speak to your bank or financial institution about the currencies in which you can obtain a bank draft and the countries to which you can send them. If your bank doesn’t support bank drafts in your desired foreign currency, compare international money transfer options to send a transfer online.
  • Processing time. Once you apply for a draft, how long will it take for your financial institution to process it?
  • Application options. It’s also a good idea to compare the different methods available when applying for a bank draft. You’ll typically need to visit a branch or apply in writing.


  • Accepted in most parts of the world. International bank drafts are accepted in the majority of countries around the globe.
  • Inexpensive. Although you’ll have to pay a fee when you apply for an international bank draft, drafts are still a relatively cost-effective method of sending funds overseas.
  • Created in the local currency. As the check is made out in the local currency where it will be sent, it doesn’t require conversion and is therefore able to be banked quicker than a check written in USD.
  • Secure. Bank drafts must be deposited into a bank account and cannot be cashed.


  • Slow. Bank drafts typically take several weeks to process, so they’re only a viable option where the speed of the transaction is not a concern.
  • Availability. There’s a chance your bank may not support the currency and country you want to send a bank draft to.
  • Time consuming to replace. Bank drafts are secured and can be replaced when lost, but the process is far from easy. Every bank has its own procedure, and at the very minimum you’ll have to wait for the bank draft to be delivered internationally a second time.

Is using a bank draft my best option?

Bank drafts are secure ways to send money. But when sending an international transfer, you have to rely on the postal service to deliver the bank draft safely. Many things can go wrong along the way, and even when everything goes right, there will still be a significant delay between sending and receiving the bank draft.

Consider using an international money transfer service instead of a bank draft when speed and convenience are crucial.

Exclusive: Minimum transfer of $1,000 for Finder readers (normally $5,000).
For larger transfers, get no transaction fees and no maximum send limits.

  • Get the best foreign exchange rates available from this online marketplace
  • Fast 1-2 day delivery to bank accounts
  • Price-match guarantee if you find a better price elsewhere

Using a bank draft to pay someone internationally

The transfer services below are not bank drafts, but rather allow you to make bank transfers which can be received by your recipient in their bank account or as cash. Consider using these services when:

  • Speed is important. Some international money transfer companies can have money in your recipients account in as little as a few minutes.
  • You want to pay in cash or with a credit card. Bank drafts are limited to payment by bank account, so use an international money transfer to pay by debit card, credit card or cash.
  • Your bank is closed. Bank drafts have to be created at the bank, in person, but online money transfers can be sent 24/7, 365 days a year from the comfort of your home.
  • Exchange rates are important. Bank drafts use the exchange rate offered by your bank, which may not be as strong as the mid-market rate offered by many money transfer companies.

Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.

Bank drafts have their time and place, but as the financial world shifts more and more into the digital realm, bank drafts may become obsolete. There are many ways to send money internationally that can be done entirely online — to learn how to get started with international money transfers, head over to our guide on transferring money.

Frequently asked questions

  • Yes. If your business has overseas invoices that need paying, you can use an international bank draft to do so. However, they are not a reliable option for invoices which require quick payment.
  • Banks offer international money transfers which can be typically processed between 24 hours and five days. Specialist online money transfer providers also offer quick funds transfers, but with lower fees and better exchange rates than banks, while companies Western Union and MoneyGram offer instant overseas money transfers.
  • Your best bet is ly to find a trusted service that allows the cash you send to be picked up within minutes. Some such companies include WorldRemit, MoneyGram and Western Union.
  • Domestic bank checks typically take up to three business days to clear, while international bank drafts often take between four and six weeks.


What is a Bank Draft?

bank draft

A bank draft or banker's draft is a check that it guaranteed by the bank that issues it. In most cases, it lists the bank's main office or branch as the issuer, and the person or company that is receiving the money as the payee; the name of the person who requested the draft is often not included.

Un a personal check, which could bounce if the account holder doesn't have enough money to cover it, there is virtually no chance that a legitimate bank draft will not be honored and paid in full.

This term is more commonly used in the UK than it is in the US, where a cashier's check is a similar, more common method of guaranteed payment.

How To Get One

To get a bank draft, a customer must make a request at the bank, which often involves some paperwork. The bank will make sure that the customer has enough money to cover the amount being requested, and deduct that money from the person's account.

The draft will then be issued, naming the bank itself — usually the main office — as the entity making the payment, and it is typically signed by at least one manager. It's given to the person who requested it, who can then use it to pay for his or her purchase.

Because the draft is written on the bank itself, payment is guaranteed in most cases.

The person who requests the draft is usually charged a fee, set by the amount of the check. Many people find that the security of this type of payment is worth the cost, however, especially for one-time payments. Customers who must regularly purchase many bank drafts may be able to get a discount.

How To Cash One

It is usually not necessary to have an account to cash a bank draft. The payee can typically take it to any bank and be given the amount of the check in cash.

If the draft is for a large amount, however, the bank may require it to be deposited directly into a checking or savings account.

It may be possible for the payee to open an account, however, so that he or she can access the money.


Most of the time, bank drafts are used by people who need to make large payments. Someone might need to use one to put down a deposit on a house, for example, or to pay for a car bought directly from a private seller.

They are considered much more secure than personal checks, since the funds are coming from the bank rather than the individual, and are especially useful in situations where the seller doesn't have the ability to take a credit or debit card as payment.


The biggest advantage of using a bank draft is that the payment is guaranteed, both for the buyer and the seller. While some people might prefer to pay with cash, this is not very secure, especially when large amounts of money are involved.

In addition, getting a secured draft provides a record of the transaction should there be any question about it, whereas cash does not. The draft is usually made out to the individual to whom the payment is made, and this is also recorded.

How much cash was withdrawn from the requester's account is listed on bank records, although it may not be possible to prove that the money was then given to a third party.


Despite the guarantee of payment in cases where a bank draft is legitimate, this form of payment is sometimes the subject of fraud.

The name of the person making the purchase never appears on the draft, so a criminal could create a fake check that appears to have been issued by a real bank and never have to include a real (or false) name.

Most authentic checks include holograms and other security features, but if the seller isn't familiar with what a real one looks , he or she could be fooled. A fraudulent bank draft will not be paid.

Experts recommend caution when accepting a bank draft as payment, particularly during times when financial institutions are typically closed, such as on a Friday night or a weekend.

Payment that is offered for goods before the potential buyer has even seen them should also be suspect. A potential buyer who shows up with a bank draft in hand on a Sunday morning to buy a car from a private seller without even asking to test drive the car is probably up to no good.

Sellers should never accept a form of payment that seems questionable or that cannot be verified.

International Transfers

It is possible to send a bank draft by mail to another country to transfer currency. Policies on international drafts vary, so customers who want to transfer money this way should contact their bank directly with any questions.

The person requesting the draft usually makes the request in his or her local currency, which is converted to that of the payee when the draft is issued.

In many cases, an international bank draft must be deposited into a bank account and cannot be submitted for cash.

Additional fees may be involved when international bank drafts are purchased and deposited. One main advantage of using this form of payment is that it usually clears much more quickly than a personal check, often in the same amount of time it takes a local check to be cleared. Sending the draft by certified mail with a tracking number can help to ensure safe delivery.

Automatic Bank Drafts

Many companies now accept what are sometimes known as automatic bank drafts (ABDs), in which money is taken the payer's account electronically at regular times. Also known as an automatic payment, automatic bill pay, and other terms, this type of draft differs in that no paper check is ever issued.

The customer must agree to the terms of the payment, which sometimes includes extra fees; authorize the company to deduct the funds; and provide his or her account number, routing information, and/or a voided check.

This type of draft is most often used to pay for utilities, mortgage, insurance, and other important bills.

Cashier's Checks and Certified Checks

A bank draft, cashier's check, and certified check are similarly guaranteed methods of payment, but do have some slight differences. The main distinction between these three types of payment are when the money is transferred and who is issuing the check.

Cashier's checks are very similar to bank drafts, and in many cases are considered the same thing.

Rather than being issued from the bank's home office or main branch, however, a cashier's check may be written from the particular branch where it is requested.

It may also be signed by the cashier or another official at the bank, rather than the manager. The funds are still transferred from the customer's account to the bank, which then issues the check on its own account.

A certified check is written on the account of the person requesting it, not the account of the bank itself. The bank certifies that the person's account has enough money in it to cover the check, and usually «earmarks» those funds so that they can only be used to pay the check. This type of check often clears much more quickly than a personal check.


How to use banker’s drafts and cheques

bank draft

Banker’s drafts and cheques are deposited in much the same way, but are issued differently. A banker’s draft is prepaid and issued by the bank. A cheque, on the other hand, is not prepaid. Both can be useful in different situations.

How can you use a cheque?


Only accept cheques from people you know and trust.

You can use a cheque to pay someone, or get paid by someone.

  • Paying someone. You can pay anyone with a cheque, if they accept it. Some businesses don’t accept cheques because there’s a bit of risk involved if the cheque bounces.
  • Getting paid. Only accept cheques from people you trust. If it turns out that the cheque is a fake, or the person doesn’t have enough money to pay, it might be difficult to get hold of the money.

Cheque writing basics

Writing cheques is simple and safe, as long as you get the basics right.

Make sure you:

  • Write the name of the person or organisation you’re paying.
  • Draw a line through any blank spaces on the cheque so people can’t add extra numbers or names.
  • Add details (such as a reference or account number) to the payee line. This makes sure the money ends up in the right place.
  • Keep the cheque stub that contains the details and reference.
  • Make sure you have enough money in your account to cover the value of the cheque until the person has paid it in and the money has been deducted. If you don’t some banks might charge you a fee for the bounced payment.

Cheque imaging

Some banks let you pay in a cheque using their mobile banking app by taking a photo of the cheque and submitting some details. Money typically clears on the next day Monday to Friday, but can take longer over the weekend or on public holidays.

Paying in a cheque in the normal way would take up to six days, so doing it digitally on an app is much quicker.

When does the money leave/ enter your account?

  • When you write a cheque, the money usually leaves your account three working days after the person pays in your cheque.
  • When you pay in a cheque, you’ll be able to use the money four working days later – but you won’t be sure the cheque has cleared (the money is really yours) until six working days after you’ve paid it in. If you use the money in the meantime, you might have to pay it back.
  • If you used cheque imaging to pay in your check, the money will be available inside two working days, and often the next working day.

Cheques do not have an expiration date, but will often be rejected if dated more than six months earlier.

This is at the bank or building society’s discretion.

Stopping a cheque

If you think you made a mistake, for example you wrote the wrong name on your cheque, or you lost it, you can ask your bank to cancel it. There is often a charge for this.

Remember to keep the cheque stub that contains the cheque details and reference.

It is a criminal offence to hand over a cheque knowing it will bounce or with the intention of cancelling it.

If the person writing the cheque doesn’t have enough money, or is committing fraud, the cheque might not be paid and will ‘bounce’.

This means you won’t be able to keep the money.

If you need to know quickly whether a cheque will bounce you can ask for ‘special presentation’.

Your bank will send the cheque to the bank which issued the cheque, by first class post and phone them the next day to confirm that it will be paid.

You’ll be charged for this service.

You won’t get the money any quicker, but you will find out if you’ll get it.

Banks usually reject cheques that are older than six months.

To avoid problems with out-of-date cheques make sure you:

  • Pay in all cheques you’re given as soon as possible.
  • If someone you’ve paid asks you for another cheque, saying they’ve lost the original or that it’s gone date – ask your bank to stop the previous cheque first.

Post-dated cheques

A post-dated cheque is one with a future pay-in date on it.

Don’t write or accept post-dated cheques – if you pay in a post-dated cheque it might be returned to you unpaid.

What is a banker’s draft?


You usually need to give your bank 24 hours notice to prepare a banker’s draft and they will probably charge for the service.

A banker’s draft, also known as a banker’s cheque, is asking a bank to write a cheque for you.

You give them your money and they give you a cheque for that amount to give to the person you’re paying.

For this reason, they do not bounce because of a lack of funds.

The money on banker’s draft is accessible four days after it’s been paid in.

However, you won’t be sure it’s cleared (the money is really yours) until six working days after it’s been paid it in.

If you spend the money in the meantime, you might have to pay it back.

When should you use one?

Banker’s drafts are often used for larger amounts and when people or organisations won’t accept a personal cheque.

There are a number of ways to transfer money to and from your bank account which can be faster and safer than using a banker’s draft.

Read more in How to transfer money from your bank account. Explore other ways to make Payments into your bank account.

Using banker’s drafts and cheques safely

  • Be careful when accepting a banker’s draft. Especially for larger sums, due to the number of instances of fake drafts being presented. For example, for the payment of cars.
  • Banker’s drafts aren’t guaranteed against fraud. If you lose one or it’s stolen, someone else could use it fraudulently. Take extra care.
  • Keep a record of each cheque you write on the stub in your chequebook. Check these against your statement and report any problems to the bank straight away.
  • For larger sums, use a banker’s draft or a bank transfer. Find out about Making phone and online bank transfers.


Packaged accounts


Shopping and paying safely online

Report a technical issue with this page


Bank Draft vs Certified Cheque | Top 5 Best Differences (With Infographics)

bank draft

A Bank Draft is a mode of payment wherein the issuing bank guarantees the payment of the amount on behalf of the payer. In order to request a Bank draft from the Bank, the payer has to have an account with that bank.

Then once the bank received the request, they usually review the account details of the payer to check whether it has sufficient funds or not. A certified check is a cheque signed by the payer and guaranteed by the bank that in payer has sufficient balance in the account to cover the amount.

It is a safer version of regular cheque since the bank itself is checking and guarantying the availability of the funds.

Bank Draft

The bank will freeze an amount from the account so that the payer cannot use that amount and the amount payable to the payee is secured. Then after that, they issue the bank draft.

Once the bank draft is issued, it is not possible to cancel the draft. This is simply because the transaction has already occurred earlier when that amount was set aside from the payer’s account.

It can only be canceled in case it has been lost or destroyed or stolen.

Certified Cheque

In the case of certified cheques, most of the time but not always, banks set aside the stipulated amount. Similar to the bank draft, once issued, this cheque cannot be reversed or stopped.

Head to Head Comparison between Bank Draft vs Certified Cheque (Infographics)

Below is the top 5 difference between Bank Draft vs Certified Cheque

Key Differences between Bank Draft vs Certified Cheque

Let us discuss some of the major differences between Bank Draft vs Certified Cheque:

  1. As discussed earlier, both bank draft vs certified cheque is used to transfer funds to the payee when the amount in bigger, both the parties only have a professional relationship and safety of the funds is a priority for both of them.
  2. Using any of these two methods for fund transference will limit the risk of cheque or draft getting bounced since they are backed and guaranteed by the respective banks.
  3. Both bank draft vs certified cheque cannot be cancelled or stopped. In both the cases, first, the amount gets blocked/set aside by the bank and then transferred to the payee. So it means that the transaction was already occurred at the time when the bank allocated that funds. So once written they cannot be taken back unless there are some unprecedented circumstances.
  4. Although in both the cases, usually bank keep aside the stipulated amount, sometimes, banks do not perform this step in case of a certified cheque. When the payer writes the certified cheque, the bank will review the balance and gives the green signal if funds are sufficient. They will not keep aside the money and it can happen that payer has withdrawn the money afterwards (very rare case). In the case of Bank draft, it is the responsibility of the bank that the payee should receive the money, so they will keep aside the funds from the account.
  5. In the case of certified cheque, it is written by the payer and backed by the bank. Bank will not write that on behalf of a payer. But for bank draft, a bank will make that draft on behalf of payer and also guarantees the payment.

Bank Draft vs Certified Cheque Comparison Table

Let’s look at the top 5 Comparison between Bank Draft vs Certified Cheque

Bank DraftCertified Cheque
It is a secure medium to pay they payer since the payment is guaranteed by the bankIt is a secure medium to pay they payer since the payment is guaranteed by the bank
Payer should have an account in the issuing bank and should have balance in the account to cover the amount of draft.The payer should have an account in the bank which is giving the guarantee and should have balance in the account to cover the amount of draft.
 Issuing banks keep aside the stipulated amount so that the payment is securedIssuing banks usually, but not always, keep aside the stipulated amount so that the payment is secured
Once issued, it cannot be reversed except for some exceptional circumstancesOnce issued, it cannot be reversed except for some exceptional circumstances
It is written by the bank on behalf of the payerIt is written and signed by the payer but certified by the bank

Conclusion – Bank Draft vs Certified Cheque

In terms of functioning and operating, both bank drafts vs certified cheques work in similar fashion.

The main goal of these two instruments is to give additional comfort and reassurance to the person who is going to receive that the payment and is rest assured that the payment will be honored.

Although these two have some small dissimilarities among themselves, they are more of two similar branches of the same tree.

This has been a guide to the top difference between Bank Draft vs Certified Cheque Here we also discuss the Bank Draft vs Certified Cheque key differences with infographics and comparison table. You may also have a look at the following articles to learn more.


Bank Draft (Meaning, Examples) | Top 3 Types of Bank Drafts

bank draft

A Bank draft, also known as banker’s cheque, is a financial instrument which is purchased from the bank and is used for remitting it in a later stage by the second party.

The second party, in a given time, can present this draft in any bank to withdraw the amount of money mentioned in the draft.

It is a guarantee, which is available for the draft holder that on presenting the same he will receive the specified amount.

A demand draft is very effective/popular in Asia and Britain. It is not very effective in the united states, but some banks do the financial guarantee work with their financial instruments, which are exercised there. It is very genuine and one of the safest ways to transfer a substantial amount for some big purchases also.

Types of Bank Draft

Now we’re discussing various kinds that are as follows:

#1 – Money Orders

In this type, where the specified amount is being transferred from one place to another. Banks also issue this on behalf of the customers. The money orders are sent from one place to another. It is also a financial instrument, and the bank takes the responsibility to remit the same on the presentation of the order before them.

#2 – Demand Draft

Demand drafts are one of the types of drafts. It is used where the payer and recipients are not at the same place. The money gets transferred into the bank accounts of the receivers on depositing the draft. Many days today, financial transactions are going on through this method.

#3 – Certified Checks

Certified checks are a very typical type of banker’s cheque. The money is sent to the recipient’s bank account through the bank, and the bank charges some amount of commission from that. It is one of the safest methods of money transfer.

Popular Course in this categoryAll in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings) 250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion

Example #1

Shiny was about to purchase a sports car for herself. After a lot of market research, she decides to buy a honda civic latest brand, which was available. She then approached a dealer to know the prices and other formalities. The dealers asked for the draft of the said amount of the car. The dealers don’t want to risk the payment.

Therefore they had asked for the draft since the amount of risk involved in doing business through drafts is very much less than that of doing it through cheques. Therefore the entire transaction was carried out through a demand draft.

Shiny went to the bank and bought a demand draft of $7,000 approx and completed all the formalities with the dealers.

Example #2

My Roy went to enroll himself for a banking course in Toronto. The institute asked him to pay the fees via demand drafts when he has requested to pay the fees via cheque. The management of the institute refused his request by asking for the demand draft or certified check.


Some of the disadvantages are as follows.

  • Little Expensive: The issuance of demand drafts is a bit expensive. The bank charges a specified amount over and above the amount to be transferred. Each bank has different charges, which is dependent upon the number of drafts that are to be made. On the other hand, it is somewhat convenient for the parties to sign cheques rather than visiting a bank branch to issue the drafts.
  • Time-Consuming: The process of bank drafts is time-consuming. The method of getting the draft is through banks only. The person should personally visit the bank branch to collect the draft. Also, the receiver has to present the draft to the bank for remittance. Therefore, nowadays, banks accept online transactions, which not only save time but also save money.
  • Deadline: There are deadlines to present the draft before the bank. If the drafts are somewhat older (2 weeks, for example), the bank refuses the remittance, and the refund process also takes time from the sender’s point of view. The deadlines of the drafts are very less as compared to the cheques. Therefore, nowadays, the financial transactions are dealt with via cheques or online methods.


For its authentication and no risk factor, the banker’s cheque is popular. The security measures are very vital here. No one can misuse this instrument because of its process.

But the limitation of this process is that the process of paying through banker’s cheque is very time-consuming. It is not a liquid asset, so it has some formalities, which make it a little bit cumbersome.

In this fast pace of life, if we will wait for such delays, we will lag. The biggest problem with this type of instrument is that it very slow, and it is costlier than cheques and online payments.

Despite the guaranteed remittance, the banks can sometimes cancel the transaction because of some queries.

Therefore, nowadays, online transactions are prevalent. But for some significant financial transactions, some conservative or risk-averse individuals choose banker’s cheque as one of their best options.

Bank Draft — Overview, How It Works, Advantages, & Disadvantages

bank draft

A bank draft is a convenient and secure instrument for making large payments without having to withdraw cash from one’s account. Bank drafts are guaranteed by financial institutions and can be used by individuals to make payments to third parties.

In most cases, bank drafts can be used to make payments in most currencies. The person receiving the bank draft can deposit it at any bank, just cash. Bank drafts by most financial institutions do not expire.

However, certain financial institutions may not accept bank drafts that are more than a few months old. Bank drafts are also commonly known as bankers’ drafts and bank checks.

How Does It Work?

First, the individual making the payment submits a request for a bank draft with their financial institution. Once the request is submitted, the bank reviews the individual’s account to see if he or she has sufficient funds to transfer.

If the individual has sufficient funds, the bank approves the request, withdraws funds from the individual’s account, and issues a bank draft for an equivalent amount. The funds withdrawn from the individual’s account are generally transferred to the bank’s reserve account until the draft is presented for payment by the beneficiary.

Bank drafts usually come with a small fee. However, most banking accounts offer a certain number of free bank drafts per year.

The bank draft is issued in the form of a document and is drafted in the name of the individual who will be depositing it and receiving the money. The individual purchasing the bank draft is responsible for ensuring that the bank draft is delivered to the payee.

Once the payee presents the bank draft for payment, his or her identity is verified with the name on the bank draft. After the identity verification process, the funds are deposited into the payee’s account. The funds can take anywhere between 1-4 business days to process.

Can a Bank Draft be Canceled?

A bank draft is difficult to cancel since the funds have already been withdrawn from the buyer’s account and transferred into the bank’s reserveBank ReservesBank reserves are the minimum cash reserves that financial institutions must keep in their vaults at any given time. The minimum cash reserve requirements account. However, if the bank can confirm that the bank draft has not been cashed out by the payee, it might agree to cancel the bank draft and refund the buyer’s account.

If the bank draft gets destroyed or stolen before being delivered to the payee, the buyer can go to their bank to get a new draft and cancel the existing one. Similarly, if the transaction gets canceled for any reason, the buyer can request the bank to cancel the draft unless it has already been cashed out by the payee.

1. Guaranteed availability of funds

Un a personal checkChecking AccountA checking account is a type of deposit account that individuals open at financial institutions for the purpose of withdrawing and depositing money. Also known as a transactional or demand account, a checking account is very liquid.

To put it simply, it provides users a quick way of accessing their money., a bank draft is guaranteed by the bank. It means that the payee is guaranteed the availability of funds.

In such a way, bank drafts are safer than personal checks, which might bounce if there are no sufficient funds in the payer’s account.

2. More convenient

Another advantage of a bank draft is that it is a much easier and more convenient method for transferring a large sum of money than withdrawing a large sum of cash. Un an e-transfer, a bank draft does not have a maximum amount limit and does not require the banking information of the payee. Thus, bank drafts are commonly used when making large purchases, such as buying a house or car.

3. Can be used for cross-border purchases and investments

Bank drafts can also provide funds in most currencies and are commonly used for cross-border purchases and investmentsInvestmentInvestment is the process of allocating capital to a financial instrument (e.g., stocks, bonds) backed by an expectation to receive certain benefits in the in foreign countries.

1. Cannot be canceled after delivery

Since bank drafts represent a transaction that has already taken place, it cannot be canceled once it is delivered to the payee.

2. Subject to fraud

Another major disadvantage of a bank draft is that if it is lost, stolen, or altered with, and the funds are cashed out by the wrong person, the bank is not responsible for replacing the lost money. In such cases, the buyer can lose a lot of money, especially since bank drafts are generally used for larger purchases.

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™FMVA® CertificationJoin 350,600+ students who work for companies Amazon, J.P. Morgan, and Ferrari certification program, designed to help anyone become a world-class financial analyst. To keep learning and advancing your career, the additional CFI resources below will be useful:

  • Bank ReconciliationBank ReconciliationA bank reconciliation is a document that matches the cash balance on the company’s books to the corresponding amount on its bank statement. Reconciling the two accounts helps determine if accounting adjustments are needed. Bank reconciliations are completed at regular intervals to ensure that
  • Banking FundamentalsBanking FundamentalsBanking fundamentals refer to the concepts and principles relating to the practice of banking. Banking is an industry that deals with credit facilities, storage for cash, investments, and other financial transactions. The banking industry is one of the key drivers of most economies
  • Cash ReservesCash ReservesCash reserves are funds that companies set aside for use in emergency situations. The cash that is saved is used to cover costs or expenses that are unplanned or unexpected. In most cases, the reserves are specifically for short-term needs. One benefit of cash reserves is that the company can avoid credit card debt or the need to take on additional loan debt.
  • Bank Account OverdraftBank Account OverdraftA bank account overdraft happens when an individual’s bank account balance goes down to below zero, resulting in a negative balance. It usually happens when there are no more funds in the account in question, but an outstanding transaction is processed through the account, leading to the account holder incurring a debt.


Все термины
Добавить комментарий

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: