When it comes to major purchases, secure transactions are crucial. As a buyer, you want to get your money into the right hands as soon as possible. And as the payee, you want to ensure your payment is legitimate. While personal checks work in some situations, a bank draft can be a better option when the stakes are high.
Bank drafts make it possible to make large payments safely and securely. Learn more about bank drafts, how they work, and their pros and cons.
A bank draft — also known as a teller’s check, bank check, or banker’s draft — is a secure payment guaranteed by the issuing bank. When you make a payment using a bank draft, the bank withdraws the funds from your account and holds them in reserve. The payee can then access these funds by cashing the bank draft at any bank where they have an account.
Though similar to personal checks, bank drafts are far more secure because they’re guaranteed by the issuing bank. As long as the issuing bank is FDIC-insured, a bank draft can’t bounce.
Bank drafts are available from banks and credit unions. When you purchase a bank draft, the bank withdraws the funds from your personal account and holds them in a reserve account.
Next, you’ll then receive the actual bank draft, a paper document similar to a check, which you must deliver to the payee. When the payee cashes the bank draft, they’ll receive the funds held in reserve at the issuing bank, often within 24 hours.
Bank drafts may incur a small fee, depending on your bank and the type of account you hold. Often, the fee is around $10.
Once you deliver a bank draft to the payee, you may not be able to cancel it. Sometimes, the only way to recover the funds is to have the payee cash the bank draft and return the money to you.
Bank drafts don’t have maximum amounts, so they’re helpful when you need to make a large purchase — such as a home or a vehicle. You may also be asked to pay with a bank draft when you don’t know the payee. Because they’re guaranteed by a financial institution, bank drafts can provide extra assurance that the recipient will get their payment.
Bank drafts can be helpful in specific circumstances, but they have disadvantages too. Weigh the following pros and cons before purchasing a bank draft:
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More secure than other forms of payment: Unlike cash, bank drafts provide a record of payment. And because they’re guaranteed by a bank or credit union, they can’t bounce like a personal check.
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No maximum amount: Many payment options enforce limits on the amount of money you can transact. Bank drafts have no such limits.
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Payee’s bank information isn’t necessary: Unlike electronic transfers, you don’t need the payee’s bank information to send them money. Instead, the bank moves the money into a reserve account until the payee cashes the bank draft.
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Efficient transaction: Bank drafts often clear within 24 hours, while other forms of payment can take several days.
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May have a fee: Depending on where you bank, you may have to pay a fee of around $10 to purchase a bank draft.
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Can be lost, damaged, or stolen: Like cash, bank drafts involve a physical transaction, making them vulnerable to loss, theft, or even fraud.
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Difficult to cancel: After a bank draft has been issued, it can be difficult or impossible to cancel.
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Less convenient: Because bank drafts involve delivering a physical document to the payee, they may not be as convenient as some alternatives, such as wire transfers.
Like a bank draft, a money order is a physical document used to make a payment. They’re also guaranteed by the institution you purchase them from because you pay up front when you buy them.
However, unlike bank drafts, money orders have transaction limits. For instance, if you’re sending a domestic money order in the U.S., the limit is $1,000. If you want to send more than that, you have to buy multiple money orders.
Another major difference between bank drafts and money orders is where you purchase and cash them. You can buy a money order at a bank or credit union, but you can also find them at post offices and certain retail locations.
Bank drafts and cashier’s checks are very similar. They’re both guaranteed by the issuing bank, making them safer alternatives to personal checks. However, these two physical documents contain different information.
With a bank draft, the bank issues the payment on your behalf, so your personal information appears on the document. With a cashier’s check, however, the bank’s information and a teller’s signature are on the check.
If you want to make a purchase using a bank draft, head to your bank or credit union to request one. Assuming you have enough funds in your account, the bank will withdraw the payment and put it in a reserve account. Finally, you’ll receive the physical draft to deliver to the payee, who can cash it at their bank.
Depending on where you bank, you may also be able to order a bank draft online.
