A bank draft is a payment instrument that is similar to a check, but its amount is guaranteed by the issuing bank. It is a paper document that looks like a regular check, but it carries a guarantee of funds from the financial institution. When a bank draft is requested, the bank ensures that the payer has enough money in their account to cover the amount requested. The bank then withdraws the money from the payers account and moves it to the banks reserve account. Bank drafts are guaranteed by the issuing bank, making them ideal for large purchases where a significant amount of money changes hands. Bank drafts are also useful for important transactions made through a notary and for major purchases overseas. Bank drafts are not the same as cashiers checks, which are a direct obligation of the bank and are provided to a customer of the bank or acquired from the bank for remittance purposes. Some key points to consider about bank drafts include:
- Bank drafts are physical documents that resemble traditional paper checks.
- Bank drafts are guaranteed by the financial institutions that issue them, making them a secure payment option.
- Bank drafts can be lost, damaged, or stolen, so the person receiving a draft should deposit the funds into their account as quickly as possible.
- Bank drafts are irrevocable as soon as they are handed over in payment.
- Bank drafts are useful for major purchases where a significant amount of money changes hands.
- Bank drafts are often used for larger amounts, and when people or organizations wont accept a personal check.
Overall, bank drafts are a secure and reliable payment option for large purchases or important transactions.
