The Key Differences Between Bank Drafts Vs Certified Cheques

Understanding the Key Differences Between Bank Drafts and Certified Cheques

Believe it or not, there is a difference between bank drafts and certified cheques. They’re both popular options, often used for large transactions or when a guarantee of funds is required. While they serve similar purposes, the two have some key differences. If you need to make a large payment but are not sure you have the capital required, then a personal loan could help you unlock the funds you need for your purchase.

A bank draft is a little bit different in the sense that it’s made by the bank on behalf of payers. The bank takes the funds directly from the payer’s account, guarantees the payment, and issues the draft, which is then presented to the recipient. The recipient can be confident that the payment is secure because the bank has already set aside the funds.

A certified cheque is different in the sense that it is verified by the bank. The bank confirms that the payer’s account has enough funds to cover the cheque, but it’s still the payer’s responsibility to ensure the funds are available when it is written.

Both are reliable, but understanding how they differ can help you choose the right option for your needs. In this post, we’ll take a look at the differences between bank drafts vs certified cheques and how you can determine which option is right for you.

Let’s get started!

What is a Bank Draft and How Does It Work?

As mentioned above, a bank draft is a secure payment method where the bank itself guarantees the funds. Essentially, it’s a cheque written by the bank on behalf of the payer, with the funds already deducted from the payer’s account. Unlike a regular personal cheque, a bank draft is backed by the bank, so it can be much more reliable for larger transactions.

To get a bank draft, the payer visits the bank, requests the draft for a specific amount, and pays the equivalent sum upfront. The bank then issues the draft, which can be made payable to a specific person or business. Because the funds are guaranteed, the recipient can be sure the payment will go through, so this will reduce the risk of bounced or insufficient funds.

Bank drafts are commonly used in real estate transactions, legal or international payments, or any situation where a guaranteed form of payment is needed.

What Is A Certified Cheque And How Is It A Secure Payment Option?

Certified cheques are a very reliable way to complete significant financial transactions. These are cheques issued by banks and they guarantee that the account holder has sufficient funds to cover the amount. When you request a certified cheque, the bank verifies the funds and “certifies” the cheque, which effectively freezes the required amount in your account.

Like a bank draft, a certified cheque is a secure payment option often used in high-value purchases, such as real estate, cars, or other scenarios where the recipient needs assurance of payment. Unlike personal cheques, certified cheques reduce the risk of bouncing since the bank ensures the money is available.

Certified Cheques sort of have an advantage over bank drafts and that’s because they’re widely accepted and known to be reliable. However, it is important to safeguard the cheque as it can treated like cash. 

Key Differences: Bank Drafts vs. Certified Cheques

Bank drafts and certified cheques are very similar but different at the same time. While both bank drafts and certified cheques are designed to provide payment assurance, bank drafts are considered more reliable because they are issued directly by the bank. When you request a bank draft, the bank withdraws the specified amount from your account and holds it in its reserves. The draft is then issued in the bank’s name, which effectively guarantees the payment to the recipient. 

Certified cheques rely on your account balance at the time of issuance. While the bank verifies and certifies that the funds are available, the cheque is still drawn directly from your account. This means that if any issues arise after certification like account freezes or errors, the cheque could potentially bounce which makes it slightly less secure than a bank draft. 

When to Use a Bank Draft vs. a Certified Cheque

Bank drafts and certified cheques are both secure methods of payment, but they serve slightly different purposes. A bank draft is best for larger purchases such as real estate or a car for example, where the recipient requires absolute certainty of payment. 

A certified cheque is commonly used for moderate transactions like paying down larger deposits or making large transactions.

Your best bet would be to choose a bank draft for transactions requiring maximum assurance and a certified cheque for situations where the recipient trusts the payer but still needs a guaranteed payment. 

FAQ’s

Are There Fees For Obtaining A Bank Draft Or A Certified Cheque?

Yes, most banks charge a fee for both services. The exact amount varies depending on your bank so make sure to confirm with them directly. 

How Long Does It Take To Process A Bank Draft Or A Certified Cheque?

Both are typically processed immediately when requested at your bank.

Can A Bank Draft Or Certified Cheque Be Canceled?

Bank drafts are harder to cancel once issued since the funds are already withdrawn. Certified cheques may be canceled if not yet cashed, but it depends on the bank’s policies.

Do All Banks Offer Bank Drafts And Certified Cheques?

Most major banks in Canada provide these services. Check with your bank to confirm availability and fees.

Which Should I Use For International Transactions?

A bank draft is preferred for international transactions as it’s often more widely accepted and reliable.

What Happens If I Lose A Bank Draft Or Certified Cheque?

Contact your bank immediately. They may issue a replacement, but this process can take time and might involve additional fees or indemnities.

Conclusion

At first, bank drafts and certified cheques may seem similar, but they cater to slightly different financial needs and situations. Understanding these differences is crucial to choosing the right payment method for your specific requirements. This way, you can stay on top of payments, big or small.