A bank draft is a guaranteed payment option you can use to send large sums of money to a third party.
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- Certified cheques work similarly to a bank draft, except the funds are put on hold rather than withdrawn immediately.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.
Frequently asked questions about bank drafts
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.
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.
How easy is it to change banks? Very. The hard part is choosing the right bank or credit union. Here’s what to think about before switching banks.
A Guaranteed Investment Certificate (GIC) is a low-risk, fixed-income investment with guaranteed returns. Interest rates vary by type.