Bank Draft

What is Bank Draft?

Definition

A bank draft, also known as teller’s check, is a check provided by a bank to the customer of the bank to remit funds to a specified account. It is drawn on a bank’s funds and guaranteed by the issuing bank. A bank draft is more suitable for large payments, and the bank customer must have sufficient account balance to be able to use this option.

Understanding a Bank Draft

Rather than use personal checks for specific kinds of payments especially large payments, it is best to use bank drafts. Personal checks permit that a specified sum of money is transferred from the check owner’s account (drawer) to the payee’s account. The check is regarded as genuine once the payee successfully receives the funds either in cash or deposit into their account. With personal checks, it is possible to have a check bounce at insufficient funds or experience a check deposit delay until the check is fully deposited and cleared.

On the contrary, when using bank drafts for remittance purposes, to avoid insufficient funds issues, the customer requesting a bank draft must first transfer the specified amount from their account to the bank’s account. In the case whereby an individual isn’t the customer of the issuing bank, such a person can request the bank draft and pay the cash into the bank’s account. Just like checks, bank drafts are also subject to being deposited and cleared; this may take several days.  Once the funds have been transferred to the bank’s account they have proven to be available and will be honored. Unless in cases such as theft or forgery, or the issuing bank goes bankrupt before the bank draft is cleared.