This term is commonly used to refer to a financial instrument that is convenient to pay for large purchases. Usually, it is used to pay for the purchase of a house, car, or expensive equipment. There is no need to withdraw cash when you use it.
What is a bank draft and how does it work?
A bank draft is a payment instrument presented on paper. It is also compared to a money order, but they have some peculiarities. A bank draft is also drawn up on paper and given to the recipient of the money. Their name and surname will be reflected in the document.
Unlike a check, a bank draft guarantees the availability of funds in the account.
At the time a bank draft is transmitted, the amount requested is “frozen” on a separate balance. In other words, it is deducted from the client’s account, and in effect, the obligation to transfer the money to the recipient of the funds falls on the bank.
The bank draft can be paid throughout Canada, as well as abroad. If the payer decides to, it can be made in one of the popular currencies. For example, in USD, CAD, or Euros,
What does a bank draft look like?
A bank draft consists of two parts: the first part is given to the seller, and the second part is kept by the account holder. The upper part serves as a counterpart to cash, so it is important to treat it responsibly. The second part is more like a receipt, which reflects all the details of the transaction. You may need it in case the bank draft is lost or stolen.
A bank draft has a serial number, by which the owner can be identified. The check is printed on watermarked letterhead and can also have microcode, which provides additional protection against counterfeiting.
How do I get a bank draft?
Getting a bank draft is not difficult at all. There are several ways to do this:
- Contact your servicing bank. Be sure to have a document proving your identity. The consultant will verify the data and help you draw up a promissory note;
- In some institutions, you can send an application for a bank draft by e-mail. You also need to provide personal information for this.
Regardless of what a bank draft is, you should treat it carefully and keep it in a safe place. Just like cash, the document is valuable and can be stolen.
Money order versus bank draft, certified check
Many Canadians don’t know the difference between these financial instruments. To understand the difference, consider a bank draft versus a certified check and a money order. The main differences are as follows:
- A money order is used when the amount does not exceed $1,000. The money is made out at a Canada Post office;
- A certified cheque is written by the account holder to the seller. The document can then be revoked or rejected if there are insufficient funds on the balance;
- Bank drafts are issued by financial institutions. The bearer of the document will be given the amount “frozen” in the account. Unlike a regular check, which is refundable, a bank draft will guarantee the money by the bank.
When choosing a payment method, you should pay attention to the payment amount. If the transfer exceeds several thousand dollars, it is better to choose a bank draft. However, some Canadian banks do not accept cheques, so you should clarify this point beforehand. If the amount is small, it is better to use a bank draft versus a money order. It will help to avoid unforeseen obstacles.
What can I spend the bank draft on?
After figuring out what a bank draft in Canada is, you can assume what you can buy with it. It is used for large purchases when rather large sums need to be transferred to the seller. Canadian residents usually pay with a bank draft in the following situations:
- For the purchase of a car;
- To make a down payment on a purchase of real estate;
- For important transactions through a notary public;
- To buy expensive items overseas.
A bank draft does not have a limited validity period. However, some banks abroad may refuse to cash it if it was issued several months before you went to the financial institution. This is important to consider if you are going to travel abroad.
Is it possible to cancel the bank draft?
Quite often there are situations when a buyer wants to cancel a purchase and has a question: can a bank draft be canceled? This happens to entrepreneurs who participate in bidding and invest money but end up not winning the contract.
Reimbursement for a bank draft is quite difficult to obtain. It requires you to submit both parts of the bank draft and an identification document to the bank.
What information is required for a bank draft?
A bank draft cannot be canceled once it has been handed over for payment to the seller. Even if you find that the goods have arrived in poor quality, it will not be possible to stop the payment. In such a situation, you will need to contact the recipient to resolve the issue beforehand or file a lawsuit in court.
Most financial institutions in Canada do not allow bank drafts to be sent by mail. This is done to make sure that a payment instrument is not lost on the way and does not fall into the hands of strangers. If you need to send a cheque and you can’t do it yourself, it is better to arrange for courier delivery with a request to get the recipient’s signature.
If the recipient of the money is too far away, the best option is to send a wire transfer.
It can be sent anywhere in the world, but the amount is limited to certain limits. In this case, the sender will have to pay an additional fee for the service. Its size varies depending on the tariff plans of the servicing bank.
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. Only a specialist will be able to verify the authenticity of the document.
Can I deposit a bank draft online RBC?
A bank draft is deposited the same way as a check. Money is deposited into the account in one of the convenient ways:
- Through a branch of a financial institution;
- Through self-service devices;
- Online through a personal account on the official website of the bank.
In this case, keep in mind that it may take a few days between the deposit and receipt of money in the account.
What happens if the bank transfer is not cashed out?
These situations are quite rare and occur in the following cases: the servicing bank has become insolvent or it suspects that the document is not authentic. The recipient of the money should contact the account holder to clarify the circumstances. Information about the bank’s insolvency is usually reported in the public domain. If the check turns out to be forged, you should contact the police.
What should I do if my bank draft is lost or tampered with?
Some Canadians do not take bank drafts seriously and lose or damage them. If you still have the non-negotiable part of the document, you should take it to a financial institution. The bank will check the authenticity of the document, whether the account has been deposited and will issue a new draft at your request. To do this, you need to execute an additional agreement.
Regardless of whether a new document has been issued, you are still liable under the old one. This means that the seller will be able to collect on the old bank draft even if there is a new one.
If the non-negotiable portion has not been retained, the bank may try to trace the account’s actions. You may be offered to redeem the non-negotiable portion under certain conditions. In doing so, you will have to pay an additional bank draft TD fee and wait a few weeks for the transaction to be completed. That’s why it’s important to keep the receipt until the transaction is complete.
What is the advantage of a bank draft?
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.
To purchase a large purchase, there is no need to withdraw cash and worry about its possible loss or theft.
It is enough to go to your bank and have a bank draft drawn up in a matter of days. You can apply for a cheque at major financial institutions in Canada. For example, this service is provided by Scotiabank, TD, RBK, CIBC.
The Final Word
A bank draft is a convenient and secure payment tool. With its help, thousands of Canadians make large purchases every year. However, you should take into account the bank’s fee, which depends on the selected rate. You should check this information with your advisors beforehand.