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Published June 7, 2023
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What Is a Bank Draft? Here’s How It Works

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.

What is a bank draft in Canada?

Bank drafts look similar to cheques, but rather than being subject to the availability of funds in your account, the full amount is guaranteed. You can get a bank draft from your bank, credit union or online-only financial institutions.

How does a bank draft work?

When you purchase a bank draft, your bank withdraws the funds from your account and places them in a 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.

Nerd tip: After obtaining your bank draft, it becomes your responsibility to ensure it ends up in the recipient’s possession. Once delivered, bank drafts can’t be cancelled. If it gets lost, damaged or stolen, getting a refund or replacement might require getting a Bond of Indemnity. To avoid any such situation, it’s best to hand over your bank draft in person or consider using a reliable, trackable delivery method.

A bond of indemnity, also known as a surety bond, is an insurance the buyer of the bank draft can get from any licensed insurance firm in Canada. The bond of indemnity covers the issuing bank against losses if the lost cheque is found and handed in for payment.

Bank draft alternatives to consider

Similar to bank drafts, certified cheques are guaranteed by the issuing bank, except the funds are put on hold rather than withdrawn immediately. Some banks no longer issue certified cheques drawn on personal accounts.

Another assured way to securely transfer money is through a money order. Money orders are certified, cashable documents sold through Canada Post and other financial institutions.

Bank draft vs. certified cheque vs. money order

If you’re looking for a guaranteed way of sending money between accounts, to individuals or businesses, you can consider your options against these main criteria:

Bank draftCertified chequeMoney order
AvailabilityMost financial institutions.Some financial institutions.Some financial institutions and Canada Post.
Can be stopped or cancelledNo.No.Yes.
Need a bank accountYes.Yes.No.

When you’re crunched for time and need online options,  you may choose one of these other ways to transfer funds in Canada.

  • 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?

Both are certified by the bank, but unlike a bank draft, a certified cheque requires your signature. You can get bank drafts at most banks for a relatively low cost, whereas certified cheques are issued by fewer financial institutions that may charge a higher fee.

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.


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