What is a Bank Draft in Canada and How it Works – PiggyBank (2024)

A bank draft is a financial instrument used to make large payments without the need to withdraw cash.

Bank drafts are guaranteed by financial institutions, meaning the individual or entity accepting payment has assurances that they will receive the funds.

A bank draft payment is the equivalent of a cash payment.

How a Bank Draft Works

Here’s an overview of how a bank draft works in practice:

1. The payer requests a bank draft for a specific amount at their bank.

The bank then reviews the payer’s account balance to verify that they have sufficient funds to cover the amount of the draft.

After the verification process is complete, the bank withdraws the funds from the payer’s account.

It issues the bank draft, which is a physical document that bears the intended recipient’s name.

2. The payer’s bank transfers the funds to their reserve account.

The funds remain in this account until the payee deposits the draft.

A bank’s reserve account contains bank deposits set aside to ensure withdrawal requests are honoured.

3. The payer delivers the draft to the payee.

This can be done personally or by mail.

4. The payee deposits the bank draft in their account.

Before accepting the draft, the bank confirms the payee’s identity and waits for the money to clear, which can take 3 – 5 business days.

Cancelling a Bank Draft

A unique aspect of a bank draft is that you’re unable to cancel it once it’s been issued.

The reason for this is once the funds have left the payer’s account and are sitting in the bank’s reserve account, the payment has already taken place.

When your financial institution presents to you a bank draft that you’ve requested, think of it as though you’ve already made your payment in cash to the payee.

A bank draft is synonymous with a cash payment – it’s erroneous to assume it functions like a cheque.

The only way you can “cancel” a bank draft is to have the payee deposit the draft and then return the money to you.

Are Bank Drafts Safe?

Yes. While a bank draft is equivalent to a large cash payment, it offers an additional layer of safety because the payer’s bank guarantees it.

As such, it’s also more secure than a cheque, which can bounce if the payer has insufficient funds in their account to cover it.

In addition, only the individual whose name is inscribed on the bank draft can deposit it.

This feature prevents unauthorized persons from cashing it.

Despite their safety, bank drafts have one shortcoming: they’re a physical document.

As a result, they’re prone to theft and damage.

Or they may go missing when in transit.

Should any of these scenarios occur, the payer is generally on the hook to replace the funds.

Suppose you obtain a bank draft to pay for a used vehicle, which you send by mail to the seller.

After some time, you discover the draft never arrived at its destination.

In this case, you should notify your financial institution right away and provide them with your draft reference number.

In the worst-case scenario, the bank will ask you to replenish your account with enough funds to cover the draft amount before issuing you a replacement draft.

However, suppose you’re able to persuade your bank not to pursue this route.

In that case, they may, instead, only ask you to sign a Lost Document Bond, personally guaranteeing that no one will cash the lost draft.

Ensure you review your financial institution’s policy regarding lost or stolen drafts.

To mitigate these risks, consider personally delivering a bank draft to the payee.

Bank Drafts vs Cheques

Here are the key differences between a bank draft and a cheque:

  • A bank draft is issued by the payer’s bank, while the payer issues a cheque.
  • Since the payer’s bank guarantees a bank draft, the payee is sure to receive the funds. When deposited by the payee, a cheque can bounce due to an insufficient balance in the payer’s account.
  • A bank draft doesn’t have an expiry date – it can be cashed at any time by the payee. Conversely, a cheque becomes stale-dated after six months, at which point financial institutions may decide not to accept it.
  • A bank draft can’t be cancelled once issued, as it represents a transaction that has already taken place. With a cheque, the payer can place a stop payment to void it while it’s in transit.
  • A bank draft doesn’t contain the signature of the payer, while a cheque does.

What is a Bank Draft in Canada and How it Works – PiggyBank (1)

Frequently Asked Questions

  • Can anyone cash a bank draft?
  • Is there a fee for a bank draft?
  • Yes. Banks charge a small for issuing bank drafts, which is typically under $10.00 in Canada. Some financial institutions offer customers a certain number of free drafts each year, but this is rare.

What is a Bank Draft in Canada and How it Works – PiggyBank (2024)


How do bank drafts work in Canada? ›

The name of the person or entity you want to pay appears on the bank draft. You then give or send the draft to the recipient, who can deposit or cash it as they would a cheque. Nerd tip: After obtaining your bank draft, it becomes your responsibility to ensure it ends up in the recipient's possession.

Can anyone cash a bank draft? ›

Only the person or a representative of the entity the bank draft is made out to can cash a bank draft. It can't be cashed by anyone else.

Can a bank draft be endorsed to another person? ›

No, unlike a bank cheque, Bank Draft is not transferable. A bank draft can be encashed "through an account" only by the beneficiary in whose favour the Draft is issued/ made. Nobody else can cash the bank draft other than the person/ organization to whom it is intended. Hope this helps.

How to tell if a bank draft is real in Canada? ›

To check whether a bank draft or money order is valid, look for things like watermarks or bring it to a branch of the institution that issued it for verification.

Can I cash a bank draft in Canada? ›

You can cash a bank draft immediately after it's been processed. That said, the funds won't be deposited into your bank account immediately. Due to the fact your bank secures the funds, it will take some time to verify that the funds will be deposited into the correct account.

How do I deposit a bank draft in Canada? ›

You deposit bank drafts the same way you would a cheque. That means you can deposit it: At a bank. At an ATM.

How do I pay someone with a bank draft? ›

When you ask to purchase a bank draft, the funds are immediately withdrawn from your deposit account. These funds are put into the bank's reserve account until the bank draft is presented for payment. As the purchaser of the bank draft, you are responsible for delivering the bank draft to the payee.

How is a bank draft cashed? ›

The person receiving the bank draft can deposit it at any bank, just like 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.

What happens to a bank draft if not cashed? ›

As long as the bank can verify that the draft has not been cashed, it can cancel it and issue a new, replacement draft. Before you obtain a bank draft from your bank, be sure to verify its bank draft cancellation and replacement policies.

Can someone deposit a picture of a bank draft? ›

Be sure that you use the original version of the cheque, not a photocopy, PDF or printout and that the cheque hasn't already been deposited. Money orders, bank drafts, certified cheques and travelers cheques may also be eligible for electronic deposit.

How long does a bank draft take to clear? ›

How long does a bank draft take to clear? Most checks take several days before you receive funds in your account. But bank drafts clear much more quickly, often appearing in your account within 24 hours. That's because the issuer's guarantee means fewer steps are needed to verify that the money is present.

Does a bank draft need two signatures? ›

In general, bank drafts are signed by two authorized officers of the bank. One of the two signatures is often described on the instrument as "counter signature". . Where an instrument is for a small sum, internal regulations may be satisfied with merely one signature .

How much is a bank draft in Canada? ›

Difference Between A Bank Draft, Money Order and Certified Cheque
Bank DraftMoney Order
IssuerBanksBanks or Canada Post
AmountNo limit$999.99
Availability1-5 business daysInstantly
1 more row
Feb 2, 2024

How to spot a fake bank draft? ›

Call their main office asking for the accounting dept. Tell them you have a cashiers check issued by their bank that you want to verify. They will ask you for the serial number and the amount. With that info, they can tell you if it is real or not.

Does a bank draft have your name on it? ›

The bank then prepares the draft with your name and the amount you are paying the third party, the payee.

What happens if a bank draft is lost in Canada? ›

If you lose the draft before you have been able to deliver it, you can replace the lost draft if you are the purchaser but you may have to sign an indemnity or provide a surety bond from a licensed insurance company before the draft is replaced.

What happens if a bank draft is not cashed? ›

As long as the bank can verify that the draft has not been cashed, it can cancel it and issue a new, replacement draft. Before you obtain a bank draft from your bank, be sure to verify its bank draft cancellation and replacement policies.

What is the process of bank draft? ›

A bank draft is a payment that is guaranteed by the issuing bank. Bank drafts are often used for larger payments such as a down payment on a home. Banks verify and withdraw funds from the payer's account and deposit them into an internal account, or a reserve account.

What is the maximum bank draft amount in Canada? ›

Amount. There is no limit on a bank draft or certified cheque as long as you have the funds available.


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