Bank Draft (Best Explanation of Bank Draft)

Bank Draft,What Is a Bank Draft?,How Does a Bank Draft Works?,What Happens When Bank Draft Is Lost,Stollen or Cancelled?, Bank Draft (Best Explanation of Bank Draft), Brillaweb
Written by Jacob Efeni

Bank Draft is the topic of today’s discussion. In this article, we’re going to discuss extensively what a bank draft is and everything you need to know about a bank draft.

If you’re here looking to know more about bank drafts, then you’re in the right place. Without wasting much time, let us dive into today’s topic of discussion.

Keep reading as I reveal what you need to know about Bank Draft.

What Is a Bank Draft?

According To Investopedia. A bank Draft can be regarded as a negotiable instrument that can be used as a payment just like a check.

The total amount of the draft can be drawn from the requesting payer’s account. When this happens, the balance then decreases by the money withdrawn from the account which is usually held in a general ledger account until the draft is crashed by the payee. With all this said, the bank draft provides the payee with a secured form of payment.

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Bank Draft,What Is a Bank Draft?,How Does a Bank Draft Works?,What Happens When Bank Draft Is Lost,Stollen or Cancelled?, Bank Draft (Best Explanation of Bank Draft), Brillaweb
What is a bank draft?

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How Does a Bank Draft Work?

As a consumer looking for different avenues that are secured or even a certified payment option then a bank draft is what you should go for most especially if you want to transact a large amount of money.

As a certified payment option, the bank draft gives the payee a form of security, because the payee knows that the funds are fully available. The bank draft which is known by different names such as banker’s note, bank check, or even teller’s check is just like the cashier’s check. They serve as a way more secure option that is guaranteed by an issuing bank or financial institution for a transaction that involves a very large sum of money.

As a customer, whenever you request a bank draft, the bank representative ensures that you have enough money in your account to cover the amount requested. Upon verification, the bank will automatically deduct the money from your account and transfer it to what is known as the general ledger or internal account.

Once the bank is done with the verification stage of the fund and transferring it to the internal account, the bank then prepares the draft with the payee’s name and the amount.

This draft contains some kind of serial numbers which they use in identifying the remitting customer, in most cases, it is watermarked. The draft also has some kind of micro-encodings which makes it identifiable as a legitimate financial instrument that can be used for negotiation when presented by the payee to their bank.

If you remember, I made mentioned above that the payee bank withdraws the money from the customer’s account into the bank’s internal account, this makes the money secure and the bank then becomes the payer.

With all said above, the bank draft acts as a viable and secured payment. If so many cases, if you want to pay for something and you don’t have any relationship with the seller, the seller may require the bank draft since you’re dealing with a large sum of money especially if the seller feels it will be difficult collecting such huge amount of money from you during a transaction.

A seller may not collect funds with a bank draft if the bank becomes insolvent and does not honour outstanding drafts, or if the draft is fraudulent.

When using a bank draft, your bank will charge you for that. This means that as a customer using the bank draft as an instrument for payment, the amount of the draft you’re requesting will determine how much you’re liable to pay as fees. This is usually a flat rate, a flat fee based on the total amount of the draft, or a percentage of the draft. Banks may waive the fee for you if they have a good relationship with you or when they consider you as a high-profile individual with an amazing net worth.

What Happens When Bank Draft Is Lost, Stollen or Cancelled?

There are some considerations on a Bank Draft which make it amazing to use for transacting large sums of money.

Some banks don’t put a stop payment on your draft once they have issued them to you. The reason why this happens is that the transaction has already taken place, which is already reflected on their record.

If for any reason you decide to reverse the transaction for some reason, the bank will redeem the draft for the full amount. But if your draft is stolen, missing or even destroyed, it is possible for you to cancel or even replace the draft as long as you have got the right documentation

What Is The Difference Between Having A Bank Draft and Money Orders?

The bank draft and money order are all prepaid with a specific amount of money printed on them. They serve as a secure means of payment from a third-party institution. With this, you don’t need to carry around any large sum of money when using a bank draft or money order.

The difference between the two is clear and straightforward. The 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.

You can only purchase bank drafts from a bank, while money orders can be purchased from certified stores, post offices, or banks.

The bank is the only certified institution that is allowed to issue a bank draft. But for the case of a money order, there are different certified institutions that are allowed to issue it to customers. Some of these institutions are certified stores, post offices, or banks.

The money order has certain limitations because the government are ensuring that it is not abused or used for money laundering, this means that there is a limit to how much money order you can get.

The bank draft plays a great role to tackle the issue of limited printed currency in circulation. Money orders cost less than bank drafts. Obtaining a bank draft is more difficult than obtaining a money order because the payer must go to their bank to purchase the draft, rather than using one of the more accessible institutions that sell money orders.

Conclusion/ Final Verdict

I hope you understand what bank draft is and how they work together with money orders. They both serve as legal instruments for transactions.

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About the author

Jacob Efeni

Brillaweb is owned by Jacob Efeni, an internet marketer, Seo expert, writer, and affiliate marketer, under Brillaweb Connect. The blog is an information blog that gives you top-notch articles on Banking, Finance, Business, Mortgage, Insurance, Entrepreneurship, and Credit cards.