What are the Advantages of Bank Drafts? with pictures
However, a bank draft is a check drawn on a bank’s funds after accepting the amount from the issuer’s account, whereas cash is used when purchasing a money order. While electronic transfers have become the default way to send money, bank drafts and money orders continue to serve a valuable purpose. Bank drafts are ideal for sending large sums, and money orders are perfect for sending money in the mail to friends or family when you don’t want to risk losing cash. Keep the costs in mind, and the possibility of fraud, if you’re receiving a bank draft or money order from a stranger. Like the bank draft, money orders are physical payment instruments that the issuer guarantees. Money orders are available for purchase from various financial institutions in Canada, including Western Union and MoneyMart.
Sending a significant quantity of money is easier and more convenient than withdrawing a large sum of cash. In addition, a bank draft, unlike an e-transfer, has no maximum amount limit and does not require the payee’s banking details. As a result, bank drafts are routinely utilised for large expenditures like buying a house or a car. A bank draft is a form of transaction guaranteed by the bank.
Because bank drafts are guaranteed by the financial institutions that issue them, they are the ideal payment option when customers make a large purchase. And unlike cash, a bank draft provides a clear, secure record of the transaction. This can be important if there’s any future dispute about the transaction. Many companies now accept what are sometimes known as automatic bank drafts , in which money is taken out of the payer’s account electronically at regular times. Also known as an automatic payment, automatic bill pay, and other terms, this type of draft differs in that no paper check is ever issued. This type of draft is most often used to pay for utilities, mortgage, insurance, and other important bills.
What should I do if my bank draft is lost or tampered with?
An auto dealership accepts a large check from the customer. The salesman takes the Cashiers Check to the bank and gets a Cashier’s Check in lieu of the original check, with the Cashiers Check made out to the auto dealer. The salesman then bought himself a new car with the Cashier’s Check, something he could not have done if the check was certified. The biggest advantage of using a bank draft is that the payment is guaranteed, both for the buyer and the seller.
These banks deal in transactions involving Foreign Exchange. Buying and Selling of Foreign Currency is their main function. Such financial assistance is provided by development banks.
Commercial banks may also serve the role of agents to their customers by way of various services. Services may include a collection of cheques, drafts, and bills, insurance premium payment, trustee or executor or customers’ estate, etc. Note that a certified bank draft, as well as any document, can be falsified. Independently determining the authenticity of the check is quite difficult. To avoid fraudulent actions, you should contact the financial institution that issued the bank draft.
Bank Drafts vs. Money Orders: Summary
Similarly, if the transaction gets canceled for any reason, the buyer can request the bank to cancel the draft unless it has already been cashed out by the payee. However, most banking accounts offer a certain number of free bank drafts per year. Certified cheques are presented or issued by customers and is not a guaranteed form of payment. The bank charges a minimal bank draft fee for the services provided, which is considerably lower than other forms of transfer.
- Although the person making the payment gets the draft, it is the recipient’s name which appears on the document.
- As a result, it is more secure and comes with less risk compared to a check.
- Despite the guarantee of payment in cases where a bank draft is legitimate, this form of payment is sometimes the subject of fraud.
- When not glued to the screen, she has her attention either on her annoying brother or five adorable cats.
- If the draft is for a large amount, however, the bank may require it to be deposited directly into a checking or savings account.
Depending on your institution, you can complete the process electronically rather than visit a brick-and-mortar banking location. Some banks may also allow business owners to submit requests via fax. The person receiving a draft can guard against this by depositing the funds into their account as quickly as possible. Business owners have no way of knowing whether there’s enough money in the payer’s account, and there’s a possibility that the check can bounce. A time demand draft comes with a set payment date in the future, and it is not payable immediately.
Consumers have numerous options for safe, approved payment alternatives. For example, they may ask for a deposit to secure an apartment or a down payment on a significant purchase. Certified payment solutions provide peace of mind to the payee by ensuring that the funds are accessible. Certified cheques, electronic payments and bank drafts are some alternatives available. They are safe payment choices that the issuing bank guarantees in many situations, for a considerable sum of money.
A receipt with the serial order particulars is delivered when the transaction has been finalized. The buyer should maintain the receipt until they are certain that the money has been processed, as it may be difficult to trace the down payment without it. With greater penetration of the internet, it has become easier for customers to avail the facilities of e-banking. E-banking has become convenient for both bankers and customers. Banks have to bear reduced transaction costs and also significantly less margin for human error. Examples of such financial institutions in India are – HDFC Bank, Axis Bank, IndusInd Bank, ICICI Bank, etc.
Types of Banking
As a result, your bank may decide to place a hold on funds when you deposit a bank draft or money order. If you require immediate access to the funds, check with your bank beforehand to determine whether a hold will be required. Both financial and non-financial transactions can take place over the internet. Customers can engage in various transactions such as remitting funds, checking balance and account statements, and also paying utility bills, among others.
In other words, the bank becomes the payee instead of the customer. Since bank drafts represent a transaction that has already taken place, it cannot be canceled once it is delivered to the payee. If the bank draft gets destroyed or stolen before being delivered to the payee, the buyer can go to their bank to get a new draft and cancel the existing one.
Work with their financial instruments, which are exercised there. Therefore, a bank draft form is very genuine and one of the safest ways to transfer a substantial amount for some big purchases. A negotiable instrument (e.g., a personal check) is a signed document that promises a sum of payment to a specified person or the assignee.
Individuals can use bank drafts to make payments to other parties as they are insured by financial institutions. A bank draft is a convenient and secure instrument for making large payments without having to withdraw cash from one’s account. Bank drafts are guaranteed by financial institutions and can be used by individuals to make payments to third parties. The popularity of bank drafts in Canada is simple – the payee is guaranteed the money by the issuing bank. In turn, regular cheques can be returned if there are insufficient funds in the owner’s account. Another advantage of a bank draft is that there is no limit on the amount you can pay.
Despite their differences, both forms of payment are predetermined and preprinted in advance. Since the payer is not required to physically transport large sums of cash, these payment methods are viewed as secure ways of payment. Debit cards allow customers to access funds directly from the bank account. In such a case, the transaction amount is directly deducted from the account.
However, it is impossible to predict when the cheque will be deposited after it is drawn. This dishonoured or ‘bounced’ cheque is now worthless and the payee receives no money, which is why cheques are less secure than cash. Years ago, they used money orders for small amounts and bank drafts for more significant transactions.
Depending on your bank and the country you are in, you are given approximately 90 days from the time the demand draft is deposited to the payee’s account to dispute the transaction. There may also be regulations to govern your safety, depending on your location. On the other hand, a certified bank draft is signed by a bank official, making it safer. A bank can also certify a cheque by adding “Certified” to the signature.
In this article, we will discuss about bank drafts and money orders. Although they are less common now than they were in the past, you may still encounter them when completing a purchase or a payment. There is still the main types of bank draft are a chance that they may be confused for one another, despite their differences. Customers and merchants alike in the current world have a plethora of options when it comes to how they might make a purchase.