What is a bank draft? (2024)

What is a bank draft?

A bank draft is a payment instrument that carries a guarantee of funds from your financial institution. It’s a paper document that looks a lot like a regular cheque. The main difference is that someone who receives a bank draft has a guarantee that the funds are available, as opposed to a regular cheque, which could bounce. Bank drafts are made out to the person receiving the money. Your name and the amount will also appear on the draft.

Bank drafts can be used in Canada or abroad to make a payment and finalize a transaction. They can be made out in the currency of your choice.

Good to know: There are two parts. The first part is “negotiable”. It’s important to treat it like cash. That’s the part that you give to the person you’re paying. The second part is “non-negotiable.” It’s a bit like a receipt: it contains the details of the transaction. Keep it for your files, separately from the negotiable part, since you can use it if the bank draft is lost or stolen.

What’s the difference between a bank draft, a certified cheque, and a money order?

Although the three payment tools are visually quite similar, there are some differences. With all three, the money is guaranteed by an institution.

  • Money order: Can be used for amounts up to $999.99. You get them from the post office and the money is guaranteed by Canada Post.
  • Bank draft: Made out by a financial institution that guarantees the funds after withdrawing the amount from one of your accounts. Bank drafts can be made out in foreign currencies.
  • Certified cheque: Similar to a bank draft, but the money isn’t withdrawn from your account. It’s simply “frozen” or “held” until the cheque is deposited.

When choosing which payment method to use, the main consideration is the amount of money you need to transfer. Bank drafts are generally recommended for big amounts, i.e., several thousand dollars. It also depends on what’s available. Some financial institutions no longer certify cheques. In which case you’ll need to opt for another form of payment.

How do I get a bank draft?

Getting a bank draft is easy. Here’s how:

  • Go to your financial institution. The teller assisting you will verify your identity.
  • For businesses, some institutions accept emailed or faxed orders for bank drafts.
  • The bank teller will withdraw the money from your account and transfer it to one of the bank’s accounts.
  • They will then prepare the draft and give it to you.

As always, you’ll need to be careful once you leave the bank, whether you’re holding cash or a document such as a bank draft, to avoid theft.

What are bank drafts for?

Bank drafts are useful for major purchases where a significant amount of money changes hands. For example, you could use a bank draft:

  • To make a down payment on a house
  • When buying a car from a dealer
  • For important transactions made through a notary
  • When making major purchases overseas (car, boat, artwork, jewellery, etc.)

Bank drafts don’t expire. However if you’re overseas, some financial institutions may refuse drafts that are several months old. So it’s best not to get them too far in advance.

How do you deposit a bank draft?

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

  • At a bank
  • At an ATM
  • Using your financial institution’s app

It can take a few days between when the money is withdrawn from your account and when the funds are available.

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What’s the advantage of using a bank draft?

Bank drafts provide the person receiving the funds with a guarantee that they’re available. They’re more reliable than a cheque, which can bounce due to insufficient funds. For the person making the payment, it’s easier and more convenient to give someone a bank draft than to carry around thousands of dollars in cash.

And unlike e-transfers, you don’t need the other person’s banking information.

What are the things to consider before buying a bank draft?

Your bank draft is irrevocable as soon as you hand it over in payment. After that, you can’t cancel it. Even if you realize you’ve been sold a lemon, you won’t be able to stop payment.

Canada Post and financial institutions don’t allow bank drafts to be sent by mail, since they could become lost in transit. If you have to send one to someone far away, it’s best to send it by courier and require a signature upon receipt.

If you need to send a large amount to someone in another country, e-transfers are another good option for sending funds anywhere in the world.

As with cheques, bank drafts can be forged. So you need to be careful to avoid fraud.

There are fees for bank drafts. For details, check your institution’s fee schedule.

What do I do if I lose a bank draft?

If you lose or misplace a bank draft you ordered or if it’s destroyed in a pair of pants that went to the dry cleaners,

take the non-negotiable part to your financial institution, if you still have it. Your institution will check to make sure the draft hasn’t been deposited and that you’re still solvent, and will then issue you another one at your request. You’ll remain responsible for the previous draft and will be required to sign an agreement to that effect. That means that if the person you give the bank draft to loses and then finds it again, they can still deposit it, at your expense, even if you gave them a replacement bank draft.

It may be possible to trace the bank draft and buy back the non-negotiable part under certain conditions. But you’ll need to pay additional fees and wait several weeks for the transaction to be finalized. That’s why it’s so important to keep the non- negotiable part in a safe place.

How do I cancel a bank draft?

If you change your mind and decide not to make the purchase or if the seller cancels the sale, you can get a refund on your bank draft. All you need to do is bring both parts of the draft to your financial institution.

This often happens with businesses that put up money to bid on a job but don’t end up winning the contract.

How to prevent fraud

If you’re selling something and the buyer wants to pay with a bank draft, it will be hard to tell if it’s authentic on your own. To make sure the document you have in your hands is the real deal, contact the financial institution that issued the draft.

All in all, bank drafts are a handy payment method for making large purchases. Of course, there are other secure forms of payment in use these days, such as Interac e-Transfers. E-transfers have become a very popular option, but since every situation is different, you’ll want to weigh your options to determine which payment solution is right for you.

Interac e-Transfer is a registered trademark of Interac Corp. and is used under licence.

What is a bank draft? (2024)


What is a bank draft and how does it work? ›

A bank draft is a payment that is like a check, but its amount is guaranteed by the issuing bank. The funds are drawn from the requesting payer's account and are then placed in the bank's reserve account until the draft is cashed by the payee.

Is a bank draft the same as a cashier's check? ›

Bank drafts are often confused with cashier's checks since they're both guaranteed by the issuing bank and are often involved in large payments. But while a bank draft is issued to the customer, a cashier's check is issued directly from the bank to the final recipient.

Can I cash a bank draft immediately? ›

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.

What is the difference between a bank draft and a cheque? ›

A cheque is a written order from an individual (the drawer) to their bank to pay a specific amount to another individual or entity (the payee). A demand draft, also known as a banker's cheque, is a pre-paid instrument issued by a bank on its own behalf, guaranteeing payment to the recipient.

Why would someone use a bank draft? ›

A bank draft is typically used instead of cash or a cheque to make a large payment to a vendor or third party. Unlike other payment methods, like a cheque, it's a guaranteed form of payment from your financial institution to someone else.

What happens when you deposit a bank draft? ›

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.

What is safer bank draft or cashier's check? ›

But a cashier's check is generally regarded as the safer payment method because the funds are drawn against the bank's account, not an individual or business account. You should be familiar with the signs of a check fraud scam any time you're accepting one of these checks from someone you don't know.

How much does a bank draft cost? ›

Fees vary for each bank and payment method. Bank draft fees generally range between $9.50 and $9.95. Certified cheques can cost up to $20, depending on whether they're requested by an account holder with the issuing bank. Money orders are the cheapest option, with fees starting at $7.50.

What is safer bank draft or cashiers check? ›

Security: Both bank drafts and cashier's checks are considered secure, but cashier's checks are often preferred for larger transactions because they are less likely to be fraudulent. 5. Availability: Bank drafts are often available immediately, while cashier's checks may take a few days to clear. 6.

What is required for a bank draft? ›

Go to your financial institution. The teller assisting you will verify your identity. For businesses, some institutions accept emailed or faxed orders for bank drafts. The bank teller will withdraw the money from your account and transfer it to one of the bank's accounts.

How safe is a bank draft? ›

Unlike a personal cheque, a bank draft is guaranteed by the financial institution, so the person to whom the bank draft is payable is sure to receive the amount on the draft. A bank draft can't be cancelled once it has been delivered to the person it's for.

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.

Can I deposit a bank draft into someone else's account? ›

A draft is a negotiable instrument. However, if it is marked Account Payee only, then it can only be deposited into the account of person in whose favor draft has been issued. Otherwise, it can be endorsed by the payee of the draft and can be deposited into the account of person in whose favor draft has been endorsed.

How do I verify a bank draft? ›

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.

Which is better bank draft or money order? ›

Differences: Bank Draft and Money Order

If you want to buy a money order, you'll need cash. Bank drafts are not a safe method of payment since they require sensitive information like a bank account number. A money order is an extra layer of security because it does not contain any identifying information.

How long does it take a bank draft to clear? ›

Bank drafts go through the clearing process as a cheque would and generally takes 5 working days to clear.


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