A bank draft, also known as a bankers draft, bank check (UK: cheque), or a teller’s check in the USA, is a check that a bank provides for a customer drawn by the bank itself – the check is guaranteed by the bank and has already been paid for.
The payee’s name – the one who receives the money – is usually written on the draft. Unlike a personal check, which draws money from the owner’s bank account when the check is presented, a bank draft has already had the money withdrawn, and by the bank itself, i.e. there is virtually no chance that it will bounce.
When a customer requests a bank draft, he or she must immediately transfer the amount of the draft, plus a fee and charges from their own account to the bank’s, or pay for it all up-front in cash.
According to ft.com/lexicon, a bank draft is: “A cheque (US: check) written by a bank and therefore certain to be paid. A customer can use a bank draft to pay someone who will not accept a personal cheque.”
Unless the bank draft is stolen or a forgery, the funds have already been transferred and are proven to be available. Before the draft is no good, the bank would have to go bust or shut down.
Bank drafts are used when larger amounts of money are required, or when the receiver will not accept a personal check. You should consider transferring money from your account to the payee’s account as an alternative, it is faster and safer than using a bank draft.
As a bank draft is not drawn on a third party, but rather on the bank itself, under English law it is not a bill of exchange. However, it might be a negotiable instrument.
Bank draft – Cashier’s check – Certified Check
Cashier’s checks, certified checks and bank drafts are all types of bank checks that are safer than personal checks, but they are not the same:
Certified Check: this is a personal check, signed by the customer and certified by the bank. The bank certifies that the customers has enough funds to clear the check and that the signature is genuine. The bank will generally – but not always – set aside the funds.
Money orders are easier to get than the other two, however, they are generally limited to no more than $1,000, so if you plan to make a very large payment, a bank draft or cashier’s check would be more suitable.
Cashier’s Check: these are signed and guaranteed by the bank – the funds come from the bank and not the customer’s account. This is usually the safest or most secure among the three options.
Bank Drafts: these are very similar to certified checks, however, the bank sets aside the funds until the draft is used. This option is more common when large sums are involved.
Bank Draft & Cashier’s Check
Many comments in forums online by people who work or have worked in banks, have examples of bank drafts and cashier’s checks used with exactly the same meaning. This means they are either mistaken or that in some banks the two are the same.
Read this written dialogue on an eBay community:
“Is a bank draft called a cashier’s check? Are they the same?”
“Yes they are the same. I worked in a bank that went through a merger. Before the merger, the bank called it a bank draft. After the merger they called it a cashier’s check. Some banks will also call them official checks.”
Bank Draft & Money Order
Bank drafts and money orders are quite similar, they are both pre-paid with a specified and printed amount. They are both seen as very secure forms of payment to a third party.
The payer, rather than carrying around large quantities of money, can use a money order or draft. However, you literally ‘buy’ a money order – you give the issuer cash and the money order is created – while a bank draft is a type of check drawn on the bank’s funds after it has accepted the amount from your bank account. Experts say that money orders are more secure than bank drafts.
Bank drafts are only issued by banks, while money orders can be issued by other types of approved businesses or institutions such as post offices or some certified stores.
There is a limit to how big a money order can be – this is not the case with a bank draft. In the United States, most money orders have a $1,000 limit, while in the UK, a post office ‘postal order’ (a type of money order) has a limit of £250.
If you are buying a house or a new car you will not use a money order, but rather a bank draft, personal check, or bank transfer.