Bank draft vs Cheque, what is the clear difference? Cheques and bank drafts are provided by a bank to its customers in order to make payments for goods and services. While they may sound similar to one another, there are a number of important differences.
Bank draft vs Cheque difference
The main difference being that a cheque is issued by the bank’s customer and is not guaranteed, whereas drafts are issued by the bank and guaranteed by the bank.
Bank draft vs. Cheque
| SIMILARITIES | DIFFERENCES |
|---|---|
| Guaranteed by a financial institution. | Some banks have stopped issuing certified cheques. |
| Money in your account is put on hold to cover the payment. | Certified cheques may have higher fees. |
| Can’t be cancelled or stopped. | |
| Can be subject to fraud and misuse, such as forgery. |
What is a cheque?
A cheque is a payment instrument that allows an individual or business to settle transactions. The person who makes the payment and writes the cheque is called the drawer of the cheque. The person who receives the cheque and cashes it to obtain funds is called the payee. The cheque facility is provided by the bank where the drawer’s account is held. When cashing the cheque, the payee has to present the cheque to the bank where the payment will be made. If the cheque is a bearer cheque or made out to cash, the payment is made to anyone who presents the cheque to the bank.
If the cheque is an order cheque, this means that the cheque specifies a person to whom the funds should be paid , in which case the bank verifies the identity of the payee and make the payment. Cheques are a facility that the bank grants to bank customers that hold current accounts. A cheque is a convenient method of payment, however, a cheque does not guarantee payment. In the event that the drawer’s bank account does not hold sufficient funds to payout the cheque, it is bounced or dishonoured.
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 abroad to make a payment and finalize a transaction. They can be made out in the currency of your choice.
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Is bank draft better than certified Cheque?
That means enough funds are available to process the certified cheque. As the above suggests, a certified cheque is charged more than a bank draft since it is certified and signed. A bank draft is prone to fraud and can be misused. Hence, their fees are lower.
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 is a money order?
A money order is another guaranteed form of payment that can be used in place of cash or a personal cheque.
In Canada, money orders are more commonly used by people who may not have a chequing account (and thus can’t send or receive payments via Interac e-transfers) or by those who want to send money internationally for less than the cost of a wire transfer. In addition to being available at financial institutions, money orders can also be bought and cashed at Canada Post outlets.
Generally, the amount per money order is limited to $999.99. Money orders are only available in a limited number of currencies. Fees may range from $7.50 to $9.95.
How to compare bank drafts, certified cheques and money orders
The main differences between bank drafts, certified cheques and money orders involve their fees, availability and allowable amounts. Here’s a breakdown of what makes these payment methods different from one another.
Why do people prefer to be paid by bankers draft rather than cheque?
Banker’s drafts are often used for larger amounts, and when people or organisations won’t accept a personal cheque. There are many ways to transfer money to and from your bank account that can be faster and safer than using a banker’s draft.
Can I deposit a bank draft like a cheque?
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.
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, there’s no maximum amount for bank drafts and 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.
How long does a bank draft take to clear?
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.
Final words – Bank draft vs Cheque
- Banks offer individuals and businesses a number of options to conveniently make payments for goods and services and to settle transactions. Cheques and bank drafts are two such methods of payment.
- A cheque is a payment instrument that allows an individual or business to settle transactions. The cheque facility is provided by the bank where the drawer’s account is held.
- A bank draft is a payment instrument that is issued by the bank at the request of the payer.
- A cheque is issued by an account holder of the bank ordering the bank to make a specific payment to the person specified, or to the bearer of the cheque.
- A bank draft is issued by the bank on the request of a bank’s customer.
- Since a bank draft is guaranteed by the bank, individuals making large payments prefer the use of a bank draft instead of a cheque.
