Overview and Definition of Bank Drafts

Moving Money
Bank drafts are often used to move large sums of money. sorbetto / Getty Images

A bank draft is a check drawn on a bank’s funds and is guaranteed by the bank that issues it. Similar to a cashier’s check, a bank draft is safer than a personal check when accepting large payments. To get a banker’s draft, a bank customer must have funds (or cash) available, and the bank will freeze or keep those funds in the bank’s own account until the payment is completed.

Banks are able to guarantee bank drafts because the customer has already “paid.”

The term bank draft is used for other situations, and use varies from country to country. For example, electronic bill payments that move funds directly from a bank account to a service provider (such as an electric utility provider or an online merchant) are also called drafts. Scroll down for a discussion of that type of draft.

Basic Bank Drafts

A traditional bank draft is a form of payment used when safety is important.

Large amounts: for high-dollar transactions, the consequences of a returned (or bounced) check would be significant. It’s risky to send expensive goods or complete a deal when there’s any uncertainty about a successful payment. A bank draft is a guaranteed form of payment that makes the payment much more likely to go through.

Available funds: standard checks can take several business days to move through the banking system. Receiving a check doesn’t mean you actually receive funds (and can withdraw the funds).

Bank drafts will generally be available in the recipient’s account within one business day, and it’s unlikely that the bank will reverse the deposit a few days or weeks later.

Bank drafts are often used for international trade or purchasing a home. The term “cashier’s check” is sometimes used instead of bank draft, especially in the United States.

A cashier’s check is very similar to a bank draft: it’s a check that’s printed and guaranteed by the bank after the bank receives money from the drawer (the person who wants to make a payment).

Contrast With Standard Checks

To understand the features of a bank draft, it’s helpful to compare and contrast with regular personal and business checks.

When a person or business writes a check, they don’t necessarily need the money available in their account — they can write a check for whatever they want, and the recipient cannot be sure if the check will bounce or not. Of course, there are consequences for passing bad checks, but it happens. Sometimes honest mistakes are to blame, and nobody’s trying to get away with anything (it’s easy to forget about other transactions that drain an account).

With a bank draft, the funds are moved into the bank’s accounts once the draft is issued. In other words, the person or organization paying with a bank draft can’t even get a bank draft unless they have the funds required, and they can’t spend that money before you deposit the bank draft because the bank already took the money out of their account.

Instead of relying on everybody who writes a check, you’re relying on a bank (which presumably has significant assets and strict procedures in place) to back up the payment.

If the bank goes out of business, you won’t get paid, but that risk is fairly small.

Are Bank Draft Payments Safe?

If somebody pays you with a bank draft, you can’t always assume you’ll get the money. Scams regularly use fake cashier’s checks to swindle victims. You may believe you’re getting paid with cleared funds, but you should always check with your bank and verify that the check is legitimate before you spend the money or sell something valuable.

You can even go a step further and verify funds with the issuing bank before handing over merchandise or depositing a bank draft.

Be especially wary of anybody who overpays and asks you to send money back — that’s a major red flag suggesting you’re dealing with a thief.

    To deposit or cash a bank draft, treat it as if it was any other check. Take it to your bank or credit union and endorse the back of the document. Your bank will credit the funds to your account more quickly if you make your deposit with a bank employee, and you might be able to get more (or all) of the amount in cash immediately.

    How to Get One

    How can you get a bank draft? Ask your bank (again, in the United States you'll typically get a "cashier's check" but other countries use the term "bank draft"). You can walk in and get one from a teller, or you might be able to request one online. Your chances are best if you go through a bank that you currently have an account with: most banks only provide this service to customers.

    If you're away from home or you don't have a bank account, you can always try walking into a branch and asking. You'll need to pay the full amount of the check (plus fees) with cash or a debit card. Alternatively, you can try using a money order, which is similar but less secure.

    If you use a credit union, you may be able to get an official check from another credit union’s branch (while accessing your own account). Thousands of credit union locations participate in shared branching.

    Be sure to bring ID with you, and expect to pay a modest fee (often around ten dollars).

    Automatic Payments

    The term bank draft can also refer to automatic electronic payments. These payments allow businesses and service providers to transfer funds directly out of customer checking accounts. Instead of writing a check or paying with plastic, customers provide bank account information (account and routing numbers, specifically) to the business to set up draft payments.

    These transfers typically happen through the Automated Clearing House (ACH) network, and they make it convenient for customers to make recurring (or even one-time) payments. Customers don’t have to write checks or type in credit card information every month, and businesses don’t need to deposit checks and wait for the funds to clear.

    Businesses can start offering payment by bank draft by setting up a merchant account or partnering with a payment processor that accepts ACH payments. These payments are typically less expensive for merchants than credit card payments (a few cents each), and less prone to chargebacks.