A bank draft is a payment instrument that is very similar to a check. It is a written order from a bank to another bank to pay a specific amount of money to a designated payee.
What is a bank draft?
A bank draft is a guaranteed payment method. It is a check drawn by a bank on its own funds. Banks offer this service, which essentially guarantees the payment to the beneficiary. The payment can be in the form of cash, money order, or another check. This means that the payee is assured that the funds will be available, unlike a regular check which may bounce if the drawer doesn't have sufficient funds.
How does a bank draft work?
- You go to the bank and request a bank draft.
- You fill out a form with the payee's name, the amount of money, and the purpose of the draft.
- The bank will issue you a draft.
- The payee will then deposit or cash the draft.
What are the advantages of using a bank draft?
- Guaranteed payment: Unlike a personal check, a bank draft is guaranteed by the bank, which means the payee is sure to receive the funds.
- Security: Because a bank draft is guaranteed by the bank, it is a very secure way to make payments.
- Convenient: Bank drafts are convenient because they can be used to make payments to anyone, anywhere in the world.
What are the disadvantages of using a bank draft?
- Fees: Banks usually charge a fee for issuing a bank draft.
- Limited availability: Some banks may not offer bank drafts or may have limited availability.
- Time consuming: The process of getting a bank draft can be time-consuming.
Conclusion
A bank draft is a safe and reliable way to make payments, especially for large sums of money. If you are looking for a guaranteed way to make a payment, a bank draft is a good option. However, it is important to be aware of the fees and the time it takes to obtain a bank draft.