{"id":3446,"date":"2022-01-06T14:14:09","date_gmt":"2022-01-06T22:14:09","guid":{"rendered":"https:\/\/www.nerdwallet.com\/ca\/?page_id=3446"},"modified":"2023-07-10T17:42:00","modified_gmt":"2023-07-11T00:42:00","slug":"what-is-a-bank-draft","status":"publish","type":"page","link":"https:\/\/www.nerdwallet.com\/ca\/banking\/what-is-a-bank-draft","title":{"rendered":"What Is a Bank Draft? Here’s How It Works"},"content":{"rendered":"\n

A bank draft is a guaranteed payment option you can use to send large sums of money to a third party. <\/p>\n\n\n\n

When cash, money orders<\/a> or cheques won\u2019t do, like when you\u2019re making a down payment on a house<\/a> or buying a used car, a bank draft can be a handy alternative.<\/p>\n\n\n\n

What is a bank draft in Canada?<\/h2>\n\n\n\n

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<\/a> or online-only financial institutions<\/a>.<\/p>\n\n\n\n

How does a bank draft work?<\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

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<\/a>.<\/p>\n\n\n\n

Nerd tip:<\/strong> After obtaining your bank draft, it becomes your responsibility<\/em> to ensure it ends up in the recipient\u2019s possession. Once delivered, bank drafts can\u2019t 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\u2019s best to hand over your bank draft in person or consider using a reliable, trackable delivery method.<\/p>\n\n\n\n

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A bond of indemnity<\/strong>, 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.<\/p>\n\n\n\n

Bank draft alternatives to consider<\/h2>\n\n\n\n

Similar to bank drafts, certified cheques<\/a> are guaranteed by the issuing bank, except the funds are put on hold rather than withdrawn immediately.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.<\/p>\n\n\n\n

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<\/a>.<\/p>\n\n\n\n

Bank draft vs. certified cheque vs. money order<\/h3>\n\n\n\n

If you\u2019re looking for a guaranteed way of sending money between accounts, to individuals or businesses, you can consider your options against these main criteria:<\/p>\n\n\n

\n\n\n\n\t\n\n\t\n\t\n\t\n\t
<\/th>Bank draft<\/th>Certified cheque<\/th>Money order<\/th>\n<\/tr>\n<\/thead>\n
Availability<\/td>Most financial institutions.<\/td>Some financial institutions.<\/td>Some financial institutions and Canada Post.<\/td>\n<\/tr>\n
Can be stopped or cancelled<\/td>No.<\/td>No.<\/td>Yes.<\/td>\n<\/tr>\n
Fees<\/td>$9-$12.50<\/td>$10-$20<\/td>$8.50-$10.00<\/td>\n<\/tr>\n
Need a bank account<\/td>Yes.<\/td>Yes.<\/td>No.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n\n\n

When you\u2019re crunched for time and need online options,  you may choose one of these other ways to transfer funds in Canada<\/a>.<\/p>\n\n\n\n