Both bank drafts and certified cheques are considered safe and secure payment methods in Canada. However, they have some key differences.
Bank Draft
A bank draft is a payment order issued by a bank on its own funds. It is essentially a cheque drawn on the bank's account and signed by a bank official.
Key Features of a Bank Draft:
- Issued by a bank: A bank draft is issued by a bank, not by an individual.
- Guaranteed payment: The bank guarantees that the payment will be made, regardless of the drawer's financial status.
- Available for a specific amount: The draft is issued for a specific amount and cannot be altered.
- Can be used for various purposes: Bank drafts can be used for various purposes, such as paying for large purchases, making a down payment on a property, or sending money to someone in another country.
Certified Cheque
A certified cheque is a personal cheque that has been guaranteed by the bank. The bank verifies that the drawer has sufficient funds in their account to cover the cheque amount and stamps it with a "certified" or "guaranteed" mark.
Key Features of a Certified Cheque:
- Issued by an individual: A certified cheque is issued by an individual, but it is guaranteed by the bank.
- Guaranteed payment: The bank guarantees that the payment will be made, as long as the drawer has sufficient funds in their account.
- Limited use: Certified cheques are typically used for smaller transactions and are not as widely accepted as bank drafts.
- May incur a fee: Some banks may charge a fee for certifying a cheque.
Key Differences:
Here is a table summarizing the key differences between bank drafts and certified cheques:
| Feature | Bank Draft | Certified Cheque |
|---|---|---|
| Issued by | Bank | Individual |
| Guarantee | Guaranteed by the bank | Guaranteed by the bank, subject to sufficient funds |
| Availability | Issued for specific amounts | Issued for any amount within account balance |
| Use | Wider range of purposes | Primarily for smaller transactions |
| Fees | Typically no fee | May incur a fee |
Which one to use?
Ultimately, the best option for you depends on your specific needs. If you need a guaranteed payment for a large transaction or if you are sending money to someone in another country, a bank draft is usually the better choice. If you need a guaranteed payment for a smaller transaction and are comfortable with the possibility of a fee, a certified cheque may be a suitable option.