Banks can guarantee bank drafts because the customer already has cash on deposit. The term bank draft is used for other situations, and use varies from country to country. For example, electronic bill payments that move funds directly from a bank account to a service provider (such as an electric utility provider or an online merchant) are also called drafts.

A traditional bank draft is a form of payment used when safety is necessary. Copious amounts for high currency transactions, the consequences of a returned (or bounced) check would be significant. It’s risky to send expensive goods or complete a deal when there’s any uncertainty about successful payment. A bank draft is a guaranteed form of payment that makes the payment much more likely to go through.

Available funds:

Standard checks can take several business days to move through the banking system. Receiving a check doesn’t mean you receive funds and can withdraw the funds. Bank Drafts will be available in the recipient’s account within one business day, and it’s unlikely that the bank will reverse the deposit a few days or weeks later.

Bank drafts are often used for international trade or purchasing. The term “cashier’s check” is sometimes used instead of Bank Draft.

A cashier’s check is like a bank draft:

It’s a check that’s printed and guaranteed by the bank after the bank receives money from the drawer of the person who wants to make a payment.

Contrast with Standard Checks:

To understand the features of a bank draft, it’s helpful to compare it with regular personal and business checks.

When a person or business writes a check, they don’t necessarily need the money available in their account, they can write a check for whatever they want, and the recipient cannot be sure if the bank will honor the check or not. Of course, there are consequences for passing bad checks, but it happens. Sometimes honest mistakes are to blame, and nobody’s trying to get away with anything (it’s easy to forget about other transactions that drain an account).

With a bank draft, the funds are moved into the bank’s accounts once the draft is issued. In other words, the person or organization paying with a bank draft can’t even get a bank draft unless they have the funds required, and they can’t spend that money before you deposit the bank draft because the bank already took the money out of their account.

Instead of relying on everybody who writes a check, you’re relying on a bank (which has significant assets and strict procedures in place) to back up the payment. If the bank goes out of business, you won’t get paid, but that risk is small.

Are Bank Draft Payments Safe?

If somebody pays you with a bank draft, you can’t always assume you’ll get the money. You may believe you’re getting paid with cleared funds, but you should always check with your bank and verify that the check is legitimate before you spend the money or sell something valuable.

You can also go a step further and verify funds with the issuing bank before handing over merchandise or depositing a bank draft.

To deposit or cash a bank draft, treat it as if it was any other check. Take it to your bank and endorse the back of the document. Your bank will credit the funds to your account more quickly if you make your deposit with a bank employee, and you might be able to get more or all the amount in cash immediately.

For more information, please feel free to contact us.

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