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What is a Bank Draft?

One definition of a bank draft is a check drawn from bank funds. An example is a cashierís check. The term bank draft is sometimes used to refer to an automatic transfer from your bank account to your service provider. Bank drafts are used to pay people or institutions with guaranteed funds. When purchasing real estate, you may be required to use a bank draft instead of a personal check. These drafts are also used in international trade. Bank drafts are more secure for sellers because the funds are guaranteed by the bank that issued the draft. If you write a personal check, your check may bounce. However, banks only issue bank drafts after they have taken money from your account to ensure that sellers have a better chance of getting paid.

This article discusses the concept of bank drafts, benefits and advantages

What is the Concept of Bank Drafts in Canada?

TD Canada Trust explains that there are different categories for bank drafts such as money orders or cashierís cheques. Bank drafts remain as secure alternatives to writing cheques or opening foreign currency accounts. You must open an account to pay for a bank draft through cash, personal cheques or direct debit from your account. Bank drafts can be obtained in TD Canada Trust branches. These are the recognized currencies: US dollars, Sterling pounds, Euro or Japanese Yen and 21other foreign currencies. Bank drafts are a secured and convenient way of paying for commodities such as supplies through online means.

What is the Objective of Bank Drafts?

The principal objective of bank drafts is to offer the convenience of cash with a level of security which is more beneficial than with a personal check. This is reflected in a common alternative name for bank drafts: cashierís cheques. The main technical difference between a cheque and a personal check is that the bank draft is drawn on the bank itself rather than an individualís account. The bank draft is more commonly used for large payments to individuals rather than corporations. This is because companies will normally have facilities for receiving either electronic transfers or card payments. There are several physical characteristics that distinguish bank drafts from cheques and similar documents. The name of the person using the bank draft for payment does not appear on the document. Although the person making the payment gets the draft, it is the recipientís name which appears on the document. There will often be added security measures such as a hologram on the document. In many cases, the document will be signed by two representatives of the bank rather than a single person.

What are the Major Advantages?

The primary advantage of the bank draft is that the amount is already paid for in full before the draft is issued. This ensures its clearance and credibility. It is only in the event of a counterfeit draft that this becomes a problem. The duration of holding this money is a total of 10 years, after which the unclaimed amount transferred to the Bank of Canada. The bank serves as custodian or holder of the amount after the ten year time period. Such balances are called unclaimed balances. The bankers draft can be used for various purposes such as the purchase of services in corporate or commercial establishments. Most of the commercial establishments prefer the bankers draft than the cheque due to the fact that the cheques may be issued without the required amount being in the bank account. The bank draft is also subject to various regulations. The Bank of Canada will act as the protector if the money becomes an unclaimed deposit for more than 40 years and less than 1,000 Canadian dollars.

Usage of Bank Drafts

Bank drafts are widely used not only in Canada but in other countries as well. The purpose here is to make sure that the banks, clients and those receiving payments are protected.


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