With over 30 million financial transactions taking place daily in Canada, knowing how to send money quickly and securely saves time and added stress. So what is a bank draft in Canada, and how does it work?
A bank draft is a financial instrument that sends large payments to a third party without withdrawing cash.
A bank draft is a solid option for many reasons I’ll explore below. Buckle up, it’s time to learn all about bank drafts in Canada.
The Basics of a Bank Draft In Canada
A bank draft is similar to a cheque, except the issuing bank will guarantee payment. The amount needed is requested from the payer’s account and put into a separate reserve account. The bank holds it there until the payee cashes or deposits it.
Steps for Setting Up a Bank Draft
People often use bank drafts when they need a secure, certified payment. These payment types, similar to cashier cheques, let the payee know that the agreed-upon funds are readily available.
You can use bank drafts for larger purchases, like a downpayment on a house or car. Sometimes, the seller will require bank drafts if they aren’t familiar with the buyer. This will guarantee they get their cut of the agreed-upon price.
The following steps guide you into setting up a bank draft and sending a secure payment.
1. Payer will request a bank draft at their bank.
When customers request a bank draft, their financial institution will verify if they have enough funds to cover the amount. If approved, they’ll withdraw the funds from the payer’s account and issue them a physical document with the intended receiver’s information.
The bank draft contains a serial number, watermarks, and other encodes to ensure it is a legal document.
2. The bank will transfer funds.
Once approved, the bank will transfer the funds from the payer’s account into a separate reserve account. The money will stay there until the payee deposits the draft document.
3. The payer delivers the draft.
Once the funds are authorized from the payer’s account, they will need to get the bank draft document to the recipient. They can do this either in person or through the mail.
4. The payee takes the bank draft to their bank.
Once the payee receives the draft, they can take it to their bank and cash it or deposit it into their account.
Can I Cancel a Bank Draft?
Although similar to a cheque, it doesn’t work exactly the same way. One of the main differences between the two is that you can’t cancel a bank draft like you can stop a cheque.
The reason for this is that a bank draft is akin to a cash payment. Once the funds leave the payer’s account and go to the reserve, the transaction has already taken place.
The only way to get your money back is if the recipient deposits the draft and returns the money to you.
Alternative Options to Bank Drafts
If you don’t want to do a bank draft, there are other ways to send money. Here are a few more options:
- Certified cheques and bank drafts are similar to each other, but with the cheques, the money is put on hold instead of instantly withdrawn from the payer’s account.
- Money orders. One of the biggest differences between money orders and bank drafts is that bank drafts need to come from a bank. You can get a money order from certified stores or Canada Post. In addition, you will need to purchase a money order with cash, but a bank draft gets drawn on the payer’s own bank account.
- Money transfer apps. Apps like PayPal and Wise let you send and receive money online quickly and securely.
Are Bank Drafts Secure?
Bank drafts are safer than many other forms of payment. To start, a bank draft is guaranteed by the bank. In addition, only the payee can cash or deposit the draft, preventing unauthorized persons from cashing it.
Final Thoughts
People use bank drafts to send large amounts of money to a recipient because they are safe and guaranteed by banks.
Need to send money internationally? Check out these nine ways to transfer money quickly and efficiently.
