HomeFinanceBank Draft- Overview, How It Works, Examples

Bank Draft- Overview, How It Works, Examples

Bank drafts are frequently used in the financial industry for secure and verified high-value transactions. Despite their popularity, not everyone may be familiar with the different types of bank drafts and the fees associated with them.

However, not everyone is familiar with the concept of bank drafts, their different types, and associated fees. This article provides an in-depth look at bank drafts, including their definition, working mechanisms, and types.

What is a Bank Draft?

A bank draft — also referred to as a bank check, banker’s draft, or teller’s check — is a financial instrument that a bank issues on behalf of its customers.

Widely used in Asia and Europe, a bank draft resembles a traditional paper check and is frequently utilized for transactions requiring a high level of security, such as real estate purchases, large equipment sales, or international trade.

Essentially, a bank draft is a guaranteed check issued by the bank. The bank deducts funds from the customer’s account and holds them in a separate account until the draft is cashed. This ensures that the funds are available and the check will not bounce.

How Does a Bank Draft Work?

Using a bank draft to carry out financial transactions is a straightforward and easy process that can be completed in just a few simple steps.

  1. The customer files a bank draft.
    The customer can fill out a form specifying the transaction’s amount in person at a bank, credit union, or other financial institution. The bank will then examine the customer’s account to ensure that there is sufficient money before approving the transaction.

    Typically, this procedure takes a few days. Be aware that a bank draft request is subject to commission, and the charging costs may vary depending on the issuing bank’s rules, the currency being used, or the frequency with which the customer has made this type of payment.
  2. The bank withdraws the requested amount from the customer’s bank account. Once withdrawn, the bank will deposit the money in a separate account under the bank’s ownership. In other words, the bank becomes the payee instead of the customer.
  3. The bank draft is issued. A bank draft normally contains the name of the issuing bank, the recipient’s name, and the draft amount in addition to a special serial number.

    Different from a regular check, the bank draft doesn’t include the customer’s account number. The customer can then convert the draft into cash which usually takes a few minutes to complete.

    Once issued, bank drafts cannot be canceled or altered to ensure the highest standards of safety and security.

Types of Bank Drafts

There are various sorts of bank drafts that can cater to needs, and they play a significant role in financial transactions.

It is likely a bank draft that will work for you whether you are making a domestic transaction, sending money abroad, traveling, or making a sizable purchase.

Let’s take a closer look at some of the most common types:

  • A demand draft is a safe and dependable payment system because the issuing bank guarantees it, indicating that the money is already in the bank’s control. It is less likely to bounce or become fraudulent as a result.
  • A certified check confirms that there are enough funds in the account to pay the check’s value. The funds required to cover the cheque are normally reserved by the bank and held until the check is cashed or deposited.

    This check is frequently used for significant purchases as well as legal procedures like paying court costs or posting bail.
  • A money order is a type of prepaid instrument for paying an individual or a business. It represents a specific sum of money, just like a check. It is prepaid and guaranteed by the issuer, unlike a check.

    When the payee does not take personal checks or when the payer does not have a bank account, money orders are frequently used. Banks, post offices, and grocery stores are just a few places where you can buy them.
  • A domestic bank draft is a reliable choice for transactions within the same country. It can be used to make deposits, pay for purchases, or move money between accounts.
  • An international bank draft is designed specifically for transactions that involve foreign currency. It is frequently used for sending money to friends and family who live abroad as well as for international trade.
  • A traveler’s check is a practical method to bring cash while traveling. It can be used to get money or to pay for things. Travelers do not need to bring a large amount of cash as they can just utilize a check which is accepted by many companies and financial institutions worldwide. Also, it is easily replaceable if lost or stolen.

Bank Draft Fees

Getting a bank draft incurs fees that can vary depending on the bank and the transaction amount. Banks may charge a flat fee or a percentage of the transaction amount.

Banks may charge as low as $0, usually for premium account holders, and as high as $9.95. There’ll be additional charges entailing currency conversions.

To minimize fees, buyers can consider using a bank that offers lower fees or consolidating multiple payments into one bank draft. Some banks also offer fee discounts to their account holders.

Bank Draft vs. Other Payment Methods

Considerations such as security, dependability, cost, and accessibility should be taken into account while choosing a payment option. Bank drafts are a fantastic choice for transmitting bigger sums of money because they are trustworthy and safe, just like Positive Pay.

Bank Draft vs Wire Transfer

While wire transfers include computerized transfers of money between banks or other financial organizations, bank drafts are checks written on a bank’s own cash.

Wire transfers are quicker and more practical for time-sensitive transactions, whereas bank drafts are more secure and frequently utilized for large transactions.

Wire transfers may have lower fees, but they are more prone to fraud and mistakes. Bank drafts are more expensive and take longer to clear. The decision between the two approaches ultimately comes down to personal requirements and preferences.

Bank Draft vs Cashier’s Check

Bank drafts and cashier’s checks are both guaranteed forms of payment, but they differ in how the funds are guaranteed and who signs the check.

The issuing bank guarantees bank drafts, and the money is held until the check is submitted for payment. Contrarily, cashier’s checks must be signed by a bank teller or cashier and are drawn on the bank’s own funds. Cashier’s checks, on the other hand, are drawn on the bank’s own funds and are signed by a bank cashier or teller.

Both types of checks may have similar fees, but bank drafts may be more expensive due to additional administrative work. They are often used for large purchases or international transactions, or when a personal check is not accepted.

Bank Draft vs Automatic Payments

Bank drafts are guaranteed by the issuing bank and are typically used for large or international transactions. On the other hand, automatic payments — an example is Automated Clearing House (ACH) transfer — are recurring payments made from one bank account to another without manual intervention.

The choice between these two methods depends on the nature of the payment. Bank drafts provide added security for one-time large transactions, while automatic payments are more convenient for regular payments.

Bank Draft Pros and Cons


  • Secure and reliable payment method
  • Applicable for large transactions and international payments
  • Serve as proof of payment
  • Typically cheaper than wire transfers
  • Easy to cancel or reissue if lost or stolen


  • Can be more expensive than other payment methods, such as personal checks or automatic payments
  • Require visiting a bank branch or arranging delivery
  • May take several days to clear, time-consuming and delaying payments
  • May have fees and charges associated with obtaining and using bank drafts

Pay Seamlessly with Peakflo

To avoid errors or delays, it is important to understand the bank draft process and fill out the draft correctly. Bank draft scams are a concern, so it is essential to take steps to protect yourself from fraud. By following these tips and understanding the bank draft process, you can use this payment method with confidence and security.

For a lot of businesses, paying bills can be a large obstacle due its the time-intensive cycle of procurement-to-payment. Peakflo can cut your bill payment time by 50%. Our accounts payable workflows can bypass the most complex approval matrix for seamless interdepartmental collaboration.

Finance or the payments team can also pay bills automatically using a digital wallet based on the due date or clear payments in bulk. We also charge one of the lowest FX markup rates in the market. Take a tour of our product to see how Peakflo can be of benefit to your financial operations.