Both bank drafts and certified cheques are secure payment methods used in Canada, but they have key differences. Here's a breakdown:
What is a Bank Draft?
A bank draft is a payment order issued by a bank on behalf of a customer. It essentially guarantees payment to the payee, as the funds are drawn from the bank's own account, not the customer's. Here's how it works:
- Customer request: You approach your bank and request a bank draft for the desired amount.
- Bank issues the draft: The bank issues a check drawn on its own account, payable to the payee you specify.
- Payment guarantee: The bank guarantees payment to the payee, as the funds are already in their account.
What is a Certified Cheque?
A certified cheque is a personal cheque that is guaranteed by the bank. It's your own personal check but with an extra layer of security. Here's the process:
- Customer presents the cheque: You present your personal check to your bank.
- Bank certification: The bank marks the check "certified" and deducts the funds from your account.
- Guaranteed payment: The bank guarantees payment to the payee, as the funds are already deducted from your account.
Key Differences Between Bank Drafts and Certified Cheques:
| Feature | Bank Draft | Certified Cheque |
|---|---|---|
| Issuer | Bank | Customer |
| Funds Source | Bank's account | Customer's account |
| Guarantee | Bank guarantees payment | Bank guarantees payment |
| Convenience | May require a visit to the bank | Can be obtained at your bank or ATM |
| Fees | Generally higher than certified cheques | Usually lower than bank drafts |
| Security | Very secure, as the bank guarantees payment | Secure, but relies on your account balance |
When to Use Each:
Use a bank draft when:
- You need the highest level of security, as the bank guarantees payment.
- You're dealing with a large transaction, like a property purchase.
- You don't have enough funds in your account for a certified cheque.
Use a certified cheque when:
- You need a guaranteed payment method but prefer a lower fee.
- You have sufficient funds in your account to cover the check.
- You're making a payment to a local vendor or individual.
Both bank drafts and certified cheques offer a safe and reliable way to make payments in Canada. Understanding their differences can help you choose the best option for your specific needs.