Bank Draft vs. Cheque

Attribute	Bank Draft	Cheque
Definition	A payment instrument issued by a bank, guaranteeing the payment of a specified amount to the recipient.	A written order instructing a bank to pay a specific amount of money from the account of the person who writes it.
Payment Guarantee	Guaranteed by the bank as it is prepaid and the funds are already debited from the payer's account.	Not guaranteed as it depends on the availability of funds in the payer's account when the cheque is presented for payment.
Issuance	Issued by the bank or financial institution.	Issued by an individual or a company.
Cost	Usually involves a fee charged by the bank for issuing a bank draft.	Generally free, although some banks may charge a fee for certain types of cheques.
Security	Considered more secure as it is prepaid and cannot bounce due to insufficient funds.	Less secure as it can bounce if the payer's account does not have sufficient funds.
Clearance Time	Typically faster as the funds are already debited from the payer's account.	May take longer as the cheque needs to be presented to the payer's bank for clearance.
Usage	Commonly used for large transactions, international payments, or when immediate payment is required.	Commonly used for everyday transactions, bill payments, and personal payments.

Introduction

When it comes to making payments, there are various methods available to individuals and businesses. Two commonly used methods are bank drafts and cheques. Both bank drafts and cheques serve as a means of transferring funds, but they differ in several aspects. In this article, we will explore the attributes of bank drafts and cheques, highlighting their similarities and differences.

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 as the funds are already debited from the customer's account. On the other hand, a cheque is a written order from an account holder to their bank, instructing them to pay a specific amount to the person or entity named on the cheque.

Security

When it comes to security, bank drafts are considered more secure than cheques. Bank drafts are typically issued by the bank itself, ensuring that the funds are available and the payment is guaranteed. This makes them a preferred method for large transactions or when dealing with unfamiliar parties. Cheques, on the other hand, can be more susceptible to fraud or insufficient funds. The recipient of a cheque must rely on the account holder having sufficient funds in their account to cover the payment.

Clearance Time

Another significant difference between bank drafts and cheques is the clearance time. Bank drafts are usually cleared and funds made available to the recipient within a shorter period. This is because bank drafts are pre-authorized and the funds are already debited from the customer's account. On the contrary, cheques often require a longer clearance time as the recipient's bank needs to verify the availability of funds in the account before processing the payment. This delay can sometimes cause inconvenience, especially when immediate access to funds is required.

Acceptance

Both bank drafts and cheques are widely accepted forms of payment. However, the acceptance of bank drafts may vary depending on the recipient. Some individuals or businesses may prefer cheques due to their familiarity and ease of processing. Additionally, in certain situations, such as rental agreements or international transactions, cheques may be the preferred method of payment. Bank drafts, on the other hand, are often required for large transactions, such as purchasing a property or making significant investments.

Cost

When considering the cost, bank drafts and cheques differ in terms of fees involved. Bank drafts typically incur a fee charged by the issuing bank. This fee covers the administrative costs associated with issuing the draft and ensuring the payment guarantee. Cheques, on the other hand, may or may not have associated fees, depending on the account holder's banking package or the policies of the bank. Some banks offer a limited number of free cheques per month, while others charge a fee for each cheque issued.

Record Keeping

Both bank drafts and cheques provide a paper trail for record keeping purposes. Bank drafts often come with a receipt or stub that can be retained by the customer as proof of payment. This can be useful for tracking expenses or providing evidence of payment in case of any disputes. Similarly, cheques also provide a record of payment, with the details of the transaction written on the cheque itself. However, it is important to note that in today's digital age, many banking transactions are moving towards electronic methods, reducing the reliance on physical records.

International Use

Bank drafts and cheques also differ in their international usability. Bank drafts are generally accepted worldwide, making them a suitable option for international transactions. They provide a secure and guaranteed method of payment, which can be particularly important when dealing with unfamiliar parties or large sums of money. Cheques, on the other hand, may face limitations when used internationally. Some countries may not accept foreign cheques or may have specific requirements for processing them, leading to potential delays or complications.

Conclusion

In conclusion, bank drafts and cheques are both payment instruments that serve their purpose in transferring funds. Bank drafts offer enhanced security, faster clearance times, and are often required for significant transactions. Cheques, on the other hand, provide familiarity, ease of use, and can be more cost-effective depending on the banking package. The choice between bank drafts and cheques ultimately depends on the specific requirements of the transaction, the preferences of the parties involved, and the level of security and convenience desired.