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Back to hub. What is a bank draft? Summary What is a bank draft? How do I get a bank draft? What are bank drafts for? How do you deposit a bank draft? Bank drafts are frequently used in international transactions and they are often used in real estate transactions.
A bank draft is obtained by a buyer, from their own bank, either by handing over cash or by having the bank deduct the amount of the draft from the buyer's account. It is this fact that makes it difficult to cancel or stop payment on a bank draft since the buyer has already paid out the funds that the draft represents.
Typically, a bank draft does not expire but most often it is recommended that a buyer does not purchase one too far in advance. Bank drafts can be used abroad. For example, if you are buying a house in a foreign country, a bank draft drawn on your account can typically provide funds in a specified currency, instead of having to convert U. When you receive a bank draft, it can be deposited at any bank because it is treated as cash, unlike when you deposit a personal check.
If a bank draft is lost or stolen, reporting it immediately to your financial institution is critical to having the bank put a stop on the draft. There are certain reasons why a bank will most likely agree to cancel a draft and It is difficult to cancel or stop payment on a bank draft outside of these conditions because, in effect, a bank draft represents a transaction that has already occurred. Since the buyer has already paid the funds to obtain the bank draft, the only means of effectively canceling the draft is to have the seller cash it and return the funds to the buyer.
However, if the draft has been lost, stolen or destroyed, the buyer may be able to cancel the draft by returning to his bank, explaining that the draft is irretrievable by either himself or the seller, and presenting to the bank the reference number or a printed copy of the draft. As long as the bank can verify that the draft has not been cashed, it can cancel it and issue a new, replacement draft.
It is a good idea to verify cancellation and replacement policies with the issuing bank. Checking Accounts. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. Most banks give a cheque book without any extra charges, at least once in a quarter, to all their savings account customers. There are no other transaction charges for withdrawal through it. But you have to pay a amount-based commission and service tax.
Demand drafts come at a charge. It increases with higher amount. A demand-draft is a pre-paid instrument, while a cheque is not. In case of a demand draft, there are no chances of a default as the amount has already been paid. So a demand draft eliminates the element of doubt and you can be confident of payment. Also, if not kept properly, there are chances of cheque leaves getting misplaced or lost. But a demand draft is made only on request. Also, it is an account payee instrument.
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