A bank draft or banker's draft is a check that it guaranteed by the bank that issues it. In most cases, it lists the bank's main office or branch as the issuer, and the person or company that is receiving the money as the payee; the name of the person who requested the draft is often not included. Unlike a personal check, which could bounce if the account holder doesn't have enough money to cover it, there is virtually no chance that a legitimate bank draft will not be honored and paid in full. This term is more commonly used in the UK than it is in the US, where a cashier's check is a similar, more common method of guaranteed payment.
How To Get One
To get a bank draft, a customer must make a request at the bank, which often involves some paperwork. The bank will make sure that the customer has enough money to cover the amount being requested, and deduct that money from the person's account. The draft will then be issued, naming the bank itself — usually the main office — as the entity making the payment, and it is typically signed by at least one manager. It's given to the person who requested it, who can then use it to pay for his or her purchase. Because the draft is written on the bank itself, payment is guaranteed in most cases.
The person who requests the draft is usually charged a fee, set by the amount of the check. Many people find that the security of this type of payment is worth the cost, however, especially for one-time payments. Customers who must regularly purchase many bank drafts may be able to get a discount.
How To Cash One
It is usually not necessary to have an account to cash a bank draft. The payee can typically take it to any bank and be given the amount of the check in cash. If the draft is for a large amount, however, the bank may require it to be deposited directly into a checking or savings account. It may be possible for the payee to open an account, however, so that he or she can access the money.
Uses
Most of the time, bank drafts are used by people who need to make large payments. Someone might need to use one to put down a deposit on a house, for example, or to pay for a car bought directly from a private seller. They are considered much more secure than personal checks, since the funds are coming from the bank rather than the individual, and are especially useful in situations where the seller doesn't have the ability to take a credit or debit card as payment.
Advantages
The biggest advantage of using a bank draft is that the payment is guaranteed, both for the buyer and the seller. While some people might prefer to pay with cash, this is not very secure, especially when large amounts of money are involved. In addition, getting a secured draft provides a record of the transaction should there be any question about it, whereas cash does not. The draft is usually made out to the individual to whom the payment is made, and this is also recorded. How much cash was withdrawn from the requester's account is listed on bank records, although it may not be possible to prove that the money was then given to a third party.
Authenticity
Despite the guarantee of payment in cases where a bank draft is legitimate, this form of payment is sometimes the subject of fraud. The name of the person making the purchase never appears on the draft, so a criminal could create a fake check that appears to have been issued by a real bank and never have to include a real (or false) name. Most authentic checks include holograms and other security features, but if the seller isn't familiar with what a real one looks like, he or she could be fooled. A fraudulent bank draft will not be paid.
Experts recommend caution when accepting a bank draft as payment, particularly during times when financial institutions are typically closed, such as on a Friday night or a weekend. Payment that is offered for goods before the potential buyer has even seen them should also be suspect. A potential buyer who shows up with a bank draft in hand on a Sunday morning to buy a car from a private seller without even asking to test drive the car is probably up to no good. Sellers should never accept a form of payment that seems questionable or that cannot be verified.
International Transfers
It is possible to send a bank draft by mail to another country to transfer currency. Policies on international drafts vary, so customers who want to transfer money this way should contact their bank directly with any questions. The person requesting the draft usually makes the request in his or her local currency, which is converted to that of the payee when the draft is issued. In many cases, an international bank draft must be deposited into a bank account and cannot be submitted for cash.
Additional fees may be involved when international bank drafts are purchased and deposited. One main advantage of using this form of payment is that it usually clears much more quickly than a personal check, often in the same amount of time it takes a local check to be cleared. Sending the draft by certified mail with a tracking number can help to ensure safe delivery.
Automatic Bank Drafts
Many companies now accept what are sometimes known as automatic bank drafts (ABDs), in which money is taken out of the payer's account electronically at regular times. Also known as an automatic payment, automatic bill pay, and other terms, this type of draft differs in that no paper check is ever issued. The customer must agree to the terms of the payment, which sometimes includes extra fees; authorize the company to deduct the funds; and provide his or her account number, routing information, and/or a voided check. This type of draft is most often used to pay for utilities, mortgage, insurance, and other important bills.
Cashier's Checks and Certified Checks
A bank draft, cashier's check, and certified check are similarly guaranteed methods of payment, but do have some slight differences. The main distinction between these three types of payment are when the money is transferred and who is issuing the check.
Cashier's checks are very similar to bank drafts, and in many cases are considered the same thing. Rather than being issued from the bank's home office or main branch, however, a cashier's check may be written from the particular branch where it is requested. It may also be signed by the cashier or another official at the bank, rather than the manager. The funds are still transferred from the customer's account to the bank, which then issues the check on its own account.
A certified check is written on the account of the person requesting it, not the account of the bank itself. The bank certifies that the person's account has enough money in it to cover the check, and usually "earmarks" those funds so that they can only be used to pay the check. This type of check often clears much more quickly than a personal check.
