Bank Drafts in Canada: Everything You Need to Know
If you’ve ever made a significant purchase in Canada, you’re likely familiar with bank drafts.
A bank draft stands out as one of the most reliable physical payment methods, backed by your financial institution or bank.
Your entire purchase amount receives the assurance of coverage from your bank or financial institution.
● Until the recipient deposits the funds, money is withdrawn from your bank account into a reserve account (when you request a bank draft).
The other common names of a bank draft are:
- Banker’s Draft
- Bank cheque
- Teller’s cheque
A recipient is provided certainty through this bank cheque.
Let us dive deep into the workings of a bank draft.
Working of a Bank Draft
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The payer’s financial institution guarantees a secured form of payment known as a bank draft.
● This bank draft can be requested from your bank or financial institution after paying a fee.
● If you opt for the service of a bank draft, the bank or financial institution will check your account balance.
● If you have money to cover the draft amount, your funds will get transferred to a reserve account.
After this process, you get a physical form of payment that you can hand over to the recipient.
● No other person than the intended recipient can withdraw cash from the bank draft.
There are various situations where people prefer bank drafts like:
- Bank drafts are used when you have to buy a large purchase.
- Bank drafts can also be used to guarantee the payment between a seller and a buyer.
Scenarios Where You Can Use a Bank Draft
Several situations arise where a bank draft comes in handy and is better than other payment methods.
● It is needed in scenarios where you are planning a large purchase.
● In a large purchase, there should be trust between the seller and buyer as things can go wrong.
● A bank draft assures the seller that the buyer has enough funds to cover the entire transaction as the buyer’s financial institution or bank has issued this draft.
When to Use a Bank Draft?
- Purchasing a car
- Make a down payment on your real estate property or purchase.
- Paying the deposits (security) on a rental property or an apartment.
- Clearing a legal settlement
- Making tuition payments
- Overseas big purchases such as jewelry, boats, and so on.
Bank Draft Safety
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A bank draft is one of the safest physical forms of payment that is sanctioned by a bank or a financial institution.
● It is one of the safest payment methods.
● It is one of the most secure payment methods.
It is convenient, safe, and secure because you are not using credit but getting funds directly from your bank account.
● The bank is backing the fund.
● Due to the bank or financial institution’s guarantee, the recipient‘s payment will never bounce.
● Checking the validity of a bank draft with a financial institution or bank is easy.
However, it is easy to verify the validity with the bank, but scammers know how to use fake bank drafts.
You must know whether the bank draft you’re receiving or paying is valid or not.
● If the payer confronts you that the payment was higher than said, it is likely they are scamming you.
How to Get a Bank Draft
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The process of getting a bank draft is simple.
● Go to your bank and request them to issue a bank draft.
● The bank’s employees run a check through your funds to assess whether you have sufficient funds to cover the transaction.
● If you have enough funds, money is transferred to a reserved account from your bank account.
● The bank sanctions you a bank draft after you have paid the bank draft fees.
● The recipient receives this bank draft.
● The recipient cashes this draft through online banking, a bank machine, or a teller into their account.
● After this draft is cleared, the recipient receives funds within 1-4 days and this fund is available for the recipient.
In this online world where you can do transactions online, you must visit your bank to clear your identity.
Costs Associated With a Bank Draft
The cost that you have to pay to use a bank draft varies for different banks and financial institutions.
● If your bank plan is high, you can use a bank draft for free or at a discounted price.
The average cost of a bank draft in Canada is $7 – $10.
Advantages and Disadvantages of a Bank Draft
| Advantages of Bank Drafts | Disadvantages of Bank Drafts |
|---|---|
| Guaranteed availability of funds | No cancellation option after issuance |
| CDIC security for deposited funds | Incurs fees |
| Ability to use multiple currencies | Susceptible to scams with fake bank drafts |
| No maximum limit on transaction amounts |
Applications
- Money transfer application
- Wire transfer
- Interac e-transfer
- Money order
- Certified cheque
- Conclusion
In conclusion, a bank draft, also known as a banker’s draft, bank cheque, or teller’s cheque, stands as a secure and reliable payment method for significant purchases in Canada. Its essence lies in the assurance provided by your financial institution, ensuring the full coverage of the purchase amount until the recipient deposits the funds. The process involves withdrawing the specified amount from your bank account into a reserve account, creating a guaranteed form of payment for the recipient. With its reliability and the certainty it offers to both the payer and the payee, a bank draft remains a preferred choice for many significant transactions in the Canadian financial landscape.
