In this article:
- What is a bank draft?
- What is the difference between a bank draft, a certified cheque, and a money order?
- What is a bank draft used for?
- How do you obtain a bank draft?
- How do you deposit a bank draft?
- What are the advantages of a bank draft?
- What should you consider before purchasing a bank draft?
- How do you cancel a bank draft?
- What are some common scams involving bank drafts?
Key takeaways
- A bank draft is a payment method used for large transactions.
- The funds are guaranteed by a financial institution, and there’s no maximum amount.
- A bank draft can be obtained at a branch and cashed like a cheque.
- Once issued, a bank draft cannot be cancelled.
What is a bank draft?
A bank draft is a document issued by a financial institution that certifies funds are available for payment. It’s typically used for large transactions, such as the purchase of a home or a car.
How does a bank draft work?
When you request a bank draft, your financial institution withdraws the amount from your account and transfers it to a reserve account. This ensures that the amount indicated on the bank draft will be available when it’s cashed.
What information is included on a bank draft?
A bank draft is very similar to a cheque. It consists of two parts:
1. The “negotiable” portion, which you give to the person or business you’re paying. It contains the following information:
- Date of issue
- Amount
- Name of the payee
- Name of the issuing bank
- Signatures of bank staff
- Draft number
- The financial institution’s transit, institution and account numbers
2. The “non-negotiable” portion, which is similar to a receipt. It contains the following information:
- Date of issue
- Amount
- Name of the payee
- Name of the person or company that requested the check
- Account number from which the funds were debited
- Draft number
Pro tip
Since the negotiable portion can be cashed, treat it as if it were currency. Keep the non-negotiable portion in your records separately – it could come in handy if the first portion is lost or stolen.
What is the difference between a bank draft, a certified cheque, and a money order?
These three payment methods appear similar at first glance, though there are some subtle differences between them. In all three cases, the funds are guaranteed by a financial institution.
- A bank draft has no limit and is guaranteed by your financial institution.
- A certified cheque is very similar to a bank draft, except that instead of withdrawing the money from your account, it’s “frozen” or “held” until it’s cashed.
- A money order has a maximum amount of $999.99 and is guaranteed by Canada Post. You can purchase one at the post office.
Which option you choose depends on the amount you need. A bank draft is generally recommended for amounts of several thousand dollars or more. The availability of a product is also a factor to consider. Some financial institutions no longer offer cheque certification, so a bank draft would be a viable alternative.
What is a bank draft used for?
Bank drafts are typically used for purchases that involve significant amounts of money. For example, you might write one for:
- Paying the down payment on a property
- Buying a car
- Completing certain notarized transactions
- Purchasing an expensive item such as a boat, a work of art, jewellery, etc.
Are bank drafts accepted in other countries?
You can use a bank draft to make payments or complete transactions in Canada as well as abroad in the currency of your choice.
Although bank drafts don’t have an expiration date, some foreign financial institutions may refuse to accept one if it was issued several months prior. You should therefore avoid requesting one too far in advance.
If you have a large sum to pay abroad, an international wire transfer is also a good option.
How do you obtain a bank draft?
Requesting a bank draft is easy. Here are the steps you need to follow:
- Go to your financial institution, where your identity will be verified.
- The funds will be withdrawn from your account and transferred to the financial institution’s reserve account.
- The bank draft will be prepared and given to you.
Good to know
Some financial institutions accept requests for bank drafts via email or fax.
Whether you’re carrying cash or a document such as a bank draft, you should always exercise caution when leaving a financial institution to avoid theft.
How do you deposit a bank draft?
A bank draft is deposited just like a cheque. You can do this:
- At a branch
- At an ATM
- Via digital deposit using your financial institution’s app
Good to know
Allow a few days for the funds to become available after you make a deposit.
What are the advantages of a bank draft?
Bank drafts guarantee that funds are available to the recipient. They’re safer than cheques, which can bounce. It’s also simpler and more convenient to hand over a bank draft for a few thousand dollars than a wad of cash.
Unlike electronic money transfers, there’s no maximum amount for this payment method, and you don’t need the banking details of the recipient.
What should you consider before purchasing a bank draft?
A bank draft can’t be cancelled once the negotiable portion has been delivered. Unfortunately, if you realize you’ve been sold a substandard product, you won’t be able to cancel the payment.
Due to the risk of loss, Canada Post and financial institutions prohibit sending a bank draft by mail. If you need to send one long distance, it’s best to use a courier service – and be sure to request a signature upon delivery.
Also, just like a cheque, a bank draft can be counterfeited. You need to be vigilant to avoid fraud.
What are the fees associated with a bank draft?
Minimal fees apply and may vary depending on the amount and currency. Please contact your financial institution to find out more about their fee schedule.
What should you do if you lose a bank draft?
Did you misplace your bank draft or accidentally destroy it while doing laundry? Go to your financial institution with the non-negotiable portion, if you still have it. They’ll check whether the draft has been cashed and issue a new one if your account is still in good standing.
Be aware, however, that you remain liable for both the old and new draft, and you’ll need to sign a statement to that effect. For example, if the person you gave the second draft to finds the first one, they could cash both.
Under certain conditions, it may be possible to trace and redeem a bank draft even without the non-negotiable portion – but there will be additional fees and a delay of several weeks. It’s therefore always a smart idea to keep the non-negotiable portion in a safe place.
How do you cancel a bank draft?
Did you decide not to purchase the property, or did the seller cancel the transaction? You can get a refund as long as you visit a branch with both parts of your bank draft.
For example, in the context of a call for bids, it’s not uncommon for a company to require a bank draft as a guarantee. Subsequently, bidders who aren’t selected will be able to recover their money through this process.
What are some common scams involving bank drafts?
As with many types of fraud, scams involving bank drafts often target classified ads and online commerce. A classic example involves someone offering to buy an item from you, such as a used car, by bank draft. It’ll be difficult for you to determine whether the document is genuine or not.
How can you protect yourself against bank draft scams?
To avoid ending up with a forged document, contact the issuing financial institution to verify its authenticity. Better yet, go to the bank with the buyer to cash the bank draft.
Be wary if the person insists on closing the sale quickly, for example, outside of bank hours. Most scams rely on a sense of urgency to deceive you.
→ Read our article on protecting yourself from common types of fraud
If you need to make a transaction involving a large sum of money, a bank draft is one way to guarantee that the funds are available. Otherwise, there are other secure payment methods such as an Interac e-Transfer® or a wire transfer. Since every situation is different, do your research to determine which payment solution best suits your needs.
Want to purchase a bank draft? Find a National Bank branch near you.
Interac e-Transfer is a registered trademark of Interac Corp. used under licence.