Bank Drafts: A Complete Guide to Secure Payments


Discover the ins and outs of bank drafts, a secure payment method guaranteed by the issuing bank, commonly used for significant transactions. Learn how bank drafts work, their advantages, and how they compare to other payment options. This comprehensive guide will leave you well-informed about the world of bank drafts.

Understanding the mechanics of bank drafts

Bank drafts, often referred to as banker’s drafts, bank checks, or teller’s checks, provide a level of payment security that personal checks simply cannot match. When you request a bank draft, the issuing bank follows a meticulous process to ensure the utmost safety of the transaction:

Fund verification

The journey begins with the bank conducting a thorough examination of your account to confirm the availability of sufficient funds to cover the requested amount.

Funds transfer

Once the fund verification is complete, the bank proceeds to deduct the draft’s specified amount from your account and holds it securely in its reserve account.

Draft preparation

With funds in safekeeping, the bank meticulously prepares the bank draft. This includes detailing your name, the payee’s information, assigning a unique serial number, incorporating security watermarks, and potentially applying micro-encoding for enhanced authentication.

It’s important to note that as the funds are withdrawn from your account during the issuance of the bank draft, the bank essentially assumes the role of the payer on your behalf. This additional layer of security holds particular appeal for sellers, especially in situations where they may not have an established relationship with the buyer or when substantial sums of money are at stake.

However, it’s crucial to be aware that banks typically impose a fee for the issuance of bank drafts. This fee can either be a fixed amount based on the draft’s total value or a percentage of the draft’s amount. Nonetheless, some banks may choose to waive this fee for customers who maintain strong relationships with the institution or for individuals classified as high-net-worth individuals (HNWIs). Understanding these intricacies will enable you to navigate the world of bank drafts with confidence and clarity.

The advantages of bank drafts

Bank drafts offer several advantages, making them a preferred choice for many financial transactions:


Bank drafts provide a high level of security as they are guaranteed by the issuing bank. This reduces the risk of bounced checks or insufficient funds, ensuring that the payee receives the agreed-upon amount.

Suitable for large transactions

Bank drafts are commonly used for significant payments, such as down payments on property purchases, where the security of the transaction is paramount.

Independent of buyer-seller relationship

They are particularly useful when a seller has no existing relationship with the buyer, ensuring they receive payment without concerns.

Fee waivers

Some banks may waive the bank draft fee for valued customers or HNWIs, offering cost-effective options for secure payments.

The limitations of bank drafts

While bank drafts offer many advantages, they are not without their limitations:


Once a bank draft is handed over to the payee, it is generally non-cancelable. Purchasers bear the responsibility of delivering the draft securely, as losing it may require specific procedures for replacement.


Banks typically charge fees for issuing bank drafts, which can add to the cost of transactions.

Bank drafts vs. money orders

Bank drafts and money orders share similarities as secure payment options, but they have distinct differences:

Bank drafts

  • Issued by financial institutions like banks and credit unions.
  • Funds are drawn directly from the issuer’s account.
  • Commonly used for substantial transactions.
  • Not purchased with cash or credit cards.
  • May have higher transaction limits than money orders.

Money orders

  • Available at certified stores, post offices, and banks.
  • Purchased with cash or debit cards.
  • Usually used for smaller transactions.
  • Subject to lower transaction limits due to anti-money laundering regulations.

Bank drafts and money orders both provide secure alternatives to carrying large sums of cash, but they serve different purposes and have varying purchasing methods.

Bank drafts vs. certified checks

While bank drafts and certified checks offer payment guarantees, they differ in the timing of fund withdrawal:

Bank Draft

Funds are withdrawn from your bank account at the time of draft issuance, and the bank guarantees payment by holding these funds in reserve.

Certified Check

The bank also guarantees payment, but your funds are not withdrawn until the check is cashed; they are merely placed on hold.

Bank draft cancellation

Bank drafts are typically non-cancelable once issued, and the payee receives them. As the purchaser, it is your responsibility to securely deliver the draft to the payee. If a draft is lost, the replacement process may involve specific procedures, such as providing a surety bond or signing an indemnity.

Cost of bank drafts

The cost of a bank draft can vary among financial institutions. Some banks charge a flat fee for the service, while others assess a percentage of the draft amount. For instance, TD Bank typically charges $9.95 for a bank draft. It’s crucial to inquire about the associated fees at your specific bank.


Here is a list of the benefits and drawbacks to consider.

  • High level of payment security
  • Suitable for large transactions
  • Independent of buyer-seller relationship
  • Possible fee waivers for valued customers
    • Non-cancelable once issued
    • May involve fees for issuance
    • Varied maximum amounts depending on the bank
    • Lost drafts require specific procedures for replacement

The bottom line

While bank drafts may not be suitable for everyday purchases, they offer a secure payment method for substantial transactions. Sellers often request bank drafts to ensure they receive their funds securely, especially in real estate or high-value item transactions. While acquiring a bank draft may involve a fee, it provides added peace of mind when engaging in significant financial transactions.

Frequently asked questions

Are bank drafts the same as personal checks?

No, bank drafts are not the same as personal checks. Bank drafts are guaranteed by the issuing bank and involve the withdrawal of funds from the payer’s account at the time of issuance, providing a higher level of security. Personal checks, on the other hand, rely on the payer’s account balance and may not offer the same level of assurance to the payee.

Can I get a bank draft for any amount?

Most banks have limits on the maximum amount you can request for a bank draft. These limits vary between financial institutions, so it’s advisable to check with your bank for their specific policies and maximum draft amounts.

What should I do if I lose a bank draft?

If you lose a bank draft, you will need to follow specific procedures to obtain a replacement. This may include providing a surety bond or signing an indemnity, depending on your bank’s requirements. It’s essential to contact your bank promptly if you lose a bank draft to initiate the replacement process.

Can I use a bank draft for international transactions?

Yes, bank drafts can be used for international transactions. However, it’s essential to check with your bank regarding any specific requirements or limitations they may have for international bank drafts. Additionally, consider any currency conversion fees and exchange rates that may apply when using a bank draft for international payments.

Is there a maximum fee for bank drafts?

There is no standardized maximum fee for bank drafts, as the fee structure can vary between financial institutions. Banks may charge a flat fee or a percentage of the draft amount. To determine the specific fee for obtaining a bank draft, it’s best to inquire with your bank or financial institution directly.

Do all banks offer fee waivers for bank drafts?

No, not all banks offer fee waivers for bank drafts. Fee waiver policies vary from one bank to another. Some banks may waive the fee for customers with strong relationships with the institution or for high-net-worth individuals (HNWIs). However, it’s essential to check with your specific bank to understand their fee waiver criteria.

Is a bank draft the same as a cashier’s check?

Bank drafts and cashier’s checks are similar in that both are guaranteed forms of payment issued by a bank. However, the terminology used may differ depending on the region or bank. It’s crucial to clarify the terms and fees with your bank before obtaining one to ensure you understand the payment instrument you are receiving.

What is the maximum amount for an international bank draft?

The maximum amount for an international bank draft can vary depending on your bank’s policies and international banking regulations. Banks often have specific limits for international transactions, including international bank drafts. It’s advisable to check with your bank to determine the maximum amount you can request for an international bank draft.

Key takeaways

  • Bank drafts are a secure form of payment guaranteed by the issuing bank, offering a higher level of security compared to personal checks.
  • When you request a bank draft, the issuing bank verifies your account funds, transfers the draft amount to its reserve account, and prepares the draft with various security features.
  • Banks typically charge a fee for issuing bank drafts, which can be a flat amount or a percentage of the draft.
  • Bank drafts are suitable for large transactions and are often used for down payments on property purchases.
  • They are independent of the buyer-seller relationship, making them useful when there’s no established connection between parties.
  • Bank drafts cannot be canceled once issued, and losing one may require specific procedures for replacement.
  • Bank drafts can be used for international transactions, but limits and requirements may vary by bank.
  • The cost of a bank draft varies among financial institutions, so it’s essential to inquire about associated fees.
  • Bank drafts are similar to cashier’s checks and provide payment guarantees.
  • Understanding the differences between bank drafts, money orders, and certified checks can help you choose the right payment method for your needs.
View Article Sources
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  2. Bank draft authorization – Harvard University
  3. Bank drafts – 8123 – California Department of General Services
  4. What is a demand draft, telephone check, or preauthorized draft? – Consumer Financial Protection Bureau