Bank drafts come as alternatives to cash, cheques, and money orders. In instances where a large amount of money is to be paid to a third party, bank drafts are agreed upon by the sender and the receiver. It is usually used in buying cars and real estate.
Alternatively, bank drafts are guaranteed methods of payments used to send a large sum of money from a bank to a recipient. Using it as a form of payment is largely dependent on the amount of money available in the sender’s bank account.
Bank drafts have numerous advantages, one of which is sending large amounts of money or purchasing big-tickets with guaranteed funds. Another is the versatility. Bank drafts are available in different currencies ultimately making it a good method for international and domestic payments. However, there are charges involved, depending on the type of account one has.
How Does One Get a Bank Draft
To get a bank draft, which is only available at banks and financial institutions, it is important to have a checking account. Getting a bank draft is in stages which are explained below:
- Letting the teller know the amount, recipient and withdrawal account. And if one is getting a foreign currency, it will be bought at the exchange rate at the time of the order.
- After filling out the bank draft and getting the bank’s signature, payment of required fees follows, which is often a sum of $9.95 unless one has a premium account.
- The money is then immediately withdrawn from the sender’s account and put in the bank’s reserves until the recipient deposits the bank draft.
- Finally, delivery of the bank draft must be timely and must be treated like cash.
Cashing a Bank Draft in Canada
The following are steps to be undertaken in cashing a bank draft in canada:
- The bank draft should be taken to a financial institution. Verification of identity is done to ensure the authenticity of the intended recipient.
- After the identity of the recipient has been verified, the bank starts the process of transferring the money into the recipient’s account. While the process is quick, it can take 1-4 business days before the money can be accessed.
Cashing a bank draft is often seamless because they are guaranteed by the financial institution that issues them.
Benefits and Shortcomings of a Bank Draft
- CDIC coverage
- Ensured availability of funds
- Limitless money transfer
- Risk of fraud, forgery, or misuse
- Cannot be canceled or stopped
- Small fees are often charged
Bank Draft and Cheque
While bank drafts and cheques have multiple similarities, there are also essential differences between them. It is important to note that bank drafts are guaranteed.
From the sender’s end, the bank or credit union will withdraw the funds from the account and keep them in its reserves. With that, the recipient can be assured of the stipulated amount being available.
From the recipient’s end, the money is known to be available in full. Cashing a bank draft is similar to cashing a cheque and a bank draft is guaranteed and cannot be canceled or stopped once it’s being processed.
Similar to cheques, bank drafts can also be misused and are prone to fraud or forgery.
Bank Drafts Alternatives in Canada
To transfer small amounts, Interac e-Transfers are fast and free, depending on the chequing account package. Also, one can purchase a money order without having a bank account albeit, they are used for amounts under $1000.
Certified cheques can still be gotten at some banks even though they are not as common. They can also still be used for large payments. A wire transfer, although expensive, can also be used to transfer funds between banks.