What Is a Bank Draft?

A bank draft is a payment issued by a financial institution using funds that have already been provided by the purchaser.

Unlike a personal cheque, the draft is drawn on the financial institution’s account, which makes it a more secure form of payment for large transactions.

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How Does a Bank Draft Work?

You request a bank draft from your financial institution for a specific amount and recipient.

The financial institution takes the money from your account and issues the draft. Because the draft is drawn on the financial institution rather than directly on your personal account, the recipient has greater assurance that the funds are available.

When Would You Use a Bank Draft?

Bank drafts are commonly used when someone needs a more secure payment method for a large transaction.

Examples can include:

• Buying a vehicle

• Making a home down payment

• Paying a large deposit

• Completing certain business transactions

• Sending a large payment when a personal cheque is not accepted

The recipient may specifically request a bank draft because the funds have already been provided to the issuing financial institution.

Bank Draft vs. Certified Cheque

The two are similar but work differently.

A bank draft is drawn on the financial institution’s account.

A certified cheque is your personal cheque that your financial institution certifies as having funds available to cover it.

Both can offer more payment certainty than an ordinary personal cheque.

How Much Does a Bank Draft Cost?

Financial institutions commonly charge a fee to issue a bank draft.

The exact fee depends on your institution and account package.

There may also be additional costs if the draft is issued in a foreign currency or needs to be replaced.

How Long Does a Bank Draft Take to Clear?

A bank draft may still be subject to a hold when deposited.

Depositing one does not necessarily mean the recipient can use the full amount immediately. Financial institutions may apply their own deposit and hold policies. Bank drafts may also be eligible for mobile deposit depending on the institution.

Check with your financial institution if the money is needed by a specific date.

Can a Bank Draft Be Cancelled?

Cancelling a bank draft can be more complicated than stopping a regular cheque because the money has already been taken from your account.

If a draft is lost or stolen, contact the issuing financial institution immediately.

The institution may require documentation or additional steps before replacing or cancelling it.

Are Bank Drafts Safe?

Bank drafts are generally considered a secure payment method because the issuing financial institution has already received the funds.

However, you should still verify a bank draft if you are receiving one from someone you do not know.

A fraudulent or altered payment instrument can still create problems even if it looks legitimate. Do not assume that money appearing in your account immediately means a payment has been fully verified.

Is a Bank Draft the Same as Cash?

Not exactly.

A bank draft provides stronger payment assurance than a personal cheque, but it is still a payment instrument that must be deposited or negotiated.

Cash is immediately usable once received.

A bank draft is better thought of as a secure way to transfer a specific amount of money through a financial institution.

When Should You Use a Bank Draft?

A bank draft can make sense when you need to make a large payment and the recipient wants more certainty than a personal cheque provides.

For smaller everyday transactions, debit cards, electronic transfers or other payment methods may be more convenient.

For larger purchases, a bank draft provides added assurance because the financial institution issues the payment after receiving the funds.