Bank Draft vs. Certified Cheque

Attribute	Bank Draft	Certified Cheque
Definition	A payment instrument issued by a bank on behalf of a payer.	A cheque guaranteed by a bank, ensuring the availability of funds.
Issued By	Bank	Individual or Business
Payment Guarantee	Guaranteed by the bank	Guaranteed by the bank
Funds Availability	Depends on the payer's account balance	Depends on the payer's account balance
Cost	May have a fee	May have a fee
Usage	Commonly used for large transactions or international payments	Commonly used for large transactions or international payments
Validity	Usually valid for a limited period	Usually valid for a limited period
Security	Considered more secure due to bank guarantee	Considered more secure due to bank guarantee

Introduction

When it comes to financial transactions, there are various methods available to ensure secure and reliable payments. Two popular options are bank drafts and certified cheques. Both of these instruments provide a level of assurance to the recipient that the funds are available and will be honored. However, there are distinct differences between the two that individuals should consider before deciding which method to use. In this article, we will explore the attributes of bank drafts and certified cheques, highlighting their unique features and benefits.

Definition and Purpose

A bank draft, also known as a banker's draft or cashier's check, is a payment instrument issued by a bank on behalf of a customer. It guarantees the payment of a specified amount to the recipient, as the funds are already debited from the customer's account. On the other hand, a certified cheque is a personal cheque that the bank certifies as valid and guarantees the payment by setting aside the funds in the customer's account.

Both bank drafts and certified cheques serve the purpose of providing a secure and reliable method of payment. They are commonly used for large transactions, such as purchasing a vehicle, making a down payment on a house, or settling legal obligations. These instruments offer a level of assurance to the recipient that the funds are available and will be honored, reducing the risk of bounced or insufficient funds.

Issuance Process

The process of obtaining a bank draft involves visiting a bank branch and requesting the issuance of a draft. The customer provides the necessary details, including the recipient's name, the amount, and any additional instructions. The bank then debits the customer's account for the specified amount and issues the bank draft in favor of the recipient.

On the other hand, obtaining a certified cheque requires the customer to write a personal cheque from their own account. The customer then presents the cheque to the bank, requesting certification. The bank verifies the availability of funds and sets aside the specified amount to guarantee payment. The certified cheque is then marked as certified and can be used as a secure form of payment.

Security and Verification

Bank drafts are considered highly secure as they are issued by the bank itself. The funds are already debited from the customer's account, ensuring that the recipient will receive the payment. Additionally, bank drafts often include security features such as watermarks, holograms, or special paper to prevent counterfeiting. Recipients can verify the authenticity of a bank draft by contacting the issuing bank directly.

Certified cheques, while not issued directly by the bank, also provide a level of security. The certification process ensures that the funds are set aside and guaranteed by the bank. The bank's stamp or certification mark on the cheque indicates that the funds are available and will be honored. Recipients can verify the certification by contacting the bank and confirming the availability of funds.

Costs and Fees

When it comes to costs and fees, bank drafts and certified cheques may differ. Banks typically charge a fee for issuing a bank draft, which can vary depending on the amount and the bank's policies. The fee is often a fixed amount or a percentage of the draft's value. It is important to inquire about the fees associated with bank drafts before requesting one.

Certified cheques, on the other hand, may not incur a separate fee for certification. Some banks offer certification services as part of their account packages or charge a nominal fee. However, it is essential to check with the bank to understand any potential costs involved in obtaining a certified cheque.

Acceptance and Accessibility

Bank drafts are generally accepted widely, both domestically and internationally. They are often preferred for large transactions, especially when dealing with unfamiliar parties or when a higher level of security is required. However, it is important to note that some recipients may have specific preferences or requirements, so it is advisable to confirm their acceptance of bank drafts beforehand.

Certified cheques, while also widely accepted, may not be as universally recognized as bank drafts. Some recipients may prefer bank drafts due to their direct issuance by the bank. However, certified cheques are still a reliable and secure form of payment, especially within the same banking network or when dealing with known parties.

Conclusion

Bank drafts and certified cheques are both valuable payment instruments that provide security and assurance to recipients. Bank drafts are issued directly by the bank, guaranteeing the payment as the funds are already debited from the customer's account. Certified cheques, on the other hand, are personal cheques that the bank certifies and guarantees by setting aside the funds. Both methods have their unique attributes, and the choice between them depends on factors such as acceptance, accessibility, costs, and personal preferences. It is advisable to consider these factors and consult with the recipient before deciding which method to use for a particular transaction.