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Published November 30, 2022

Bank Drafts: What They Are and How They Work

A little like a cheque, a little like a money order, a bank draft is a guaranteed payment method that allows you to transfer large amounts of cash from your bank to a third party.

A bank draft is a guaranteed payment option you can use to send large sums of money to a third party.

When cash, money orders or cheques won’t do, like when you’re making a down payment on a house or buying a used car, a bank draft can be a handy alternative. Let’s find out how one works.

How do bank drafts work?

Bank drafts look similar to cheques, but they work a little differently. When you take out a bank draft, your bank or credit union withdraws the funds from your account and places them in its reserve account. This guarantees the full amount is available for the person receiving the draft.

The name of the person or entity you want to pay appears on the bank draft. You then give or send the draft to the recipient, who can deposit or cash it as they would a cheque.

This part of the puzzle is key: After obtaining your bank draft, it becomes your responsibility to ensure it ends up in the recipient’s possession. Bank drafts can’t be cancelled, and if one gets lost, damaged or stolen, getting a refund or replacement might require getting a Bond of Indemnity. If you can’t hand over a bank draft in person, consider using a reliable, trackable delivery method.

» DISCOVER: How do online-only banks work in Canada?

Alternatives to bank drafts

If a bank draft is not suitable for your circumstance, consider these other ways to transfer money in Canada.

  • Certified cheques work similarly to a bank draft, except the funds are put on hold rather than withdrawn immediately. Some banks no longer issue certified cheques drawn on personal accounts.
  • Money orders are guaranteed and sold through Canada Post and other financial institutions. Money orders are certified, cashable documents, available up to CAD$999.99.
  • E-transfers allow you to instantly send money to a Canadian recipient’s mobile number or email address. They’re usually subject to a daily debit limit.
  • Wire transfers are a quick way to send money between two bank accounts, either within Canada or internationally. 
  • Money transfer apps, such as PayPal, allow you to quickly send money, make an online payment or receive funds from individuals or businesses.

» MORE: What are bank account and routing numbers?

Frequently asked questions about bank drafts

What’s the difference between a bank draft and a cheque?

Unlike cheques, bank drafts are guaranteed forms of payment. When someone receives a bank draft, they know the funds are available because they’ve already been transferred to a financial institution.

Can bank drafts be cancelled?

No. That’s why it’s important to take care of your bank draft and ensure it gets delivered directly to the recipient, either in person or by a secured, trackable form of delivery.

About the Authors

Helen Burnett-Nichols

Helen Burnett-Nichols is a freelance writer specializing in news and feature articles on a variety of business, legal and investment topics. Her work has appeared in publications such as The Globe and Mail, National Post Legal Post, Canadian Lawyer magazine, Benefits Canada and Golden Girl Finance. Follow her on Twitter @helenbnichols or visit her website,

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the editor and senior writer for four publications, including the leading website for the country’s mortgage industry, Mortgage Broker News. Clay has written 30,000-word examinations of Canada’s real estate investment market, interviewed the industry’s most powerful leaders and analysts, and has helped choose both the nation’s top realtors and mortgage brokers. He is based in Toronto, Ontario.

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