Ben Todd | Jun 2, 2017 | 1
What Is A Bank Draft?
What is a bank draft? A bank draft is a payment made by a payer, but the payment itself is guaranteed by the issuing bank. If the recipient is a little worried about accepting the payment, then the recipient need not be worried if it is a bankers draft because the issuing bank is guaranteeing payment.
What Is A Bank Draft And How Does It Work?
You may go to your bank or credit union and ask for a bank draft. It is a little bit like asking them to write a check that they guarantee payment on. If you take a check to somebody and you take a bank draft, then that person is more likely to want the bank draft than the check because that person knows the bank draft cannot bounce.
What Is A Bank Draft? Here Is An Example?
Beryl wants to buy a flashy new car to show off to her parents and prove that her college course in transgender studies was not a waste of time. Sadly, Beryl has been unemployed since she left college and will probably stay that way for a long time. However, her boyfriend cheated on her and promised to buy her a car if she took him back.
Beryl goes to the car dealership and sees that they have a few limited-time offers that are only available for one week. They run her credit rating to discover that she has a mortgage-worth of student debt, but has not had a job since leaving college. They refuse to let her put a deposit on a car because they do not believe she will be able to pay the deposit and/or the rest of the balance for the car.
She goes back to her boyfriend and asks for all the money right away, but he can only produce $5000, and the car is on sale for $8500. Her boyfriend puts $5000 in her account, so she runs on down to the car dealership with a check for $5000. Knowing her credit rating, the car dealership refuses to accept her check and refuses to continue the special offer for longer than a week. Beryl now has a problem because she has the money in her account, but the car dealership won’t accept her personal check.
Beryl goes to her bank and asks for a bank draft. The bank sees that she has $5323 in her account because her boyfriend put the $5000 in her account the other day. Her bank puts $5000 of her balance to one side and puts a hold on it. They write a bank draft and give it to Beryl. When she goes back into her online account, she can see that she has $5323 in her account, but her “Available Balance” is just $323 because a hold has been put on the $5000.
Beryl takes her bank draft down to the dealership and they accept her deposit. She gets the car at the special offer price so long as she comes back in less than a month to pay the remaining balance off her car, and she should be able to do that because her boyfriend promised to pay the other $3500 for her car or he doesn’t get to play with her puppies anymore.
For the record, the images of Beryl are not actually of a woman called Beryl. They are actually images of a woman who was hit by a car, but survived because her large boobs cushioned the blow. That is not actually a joke, it is a true story as reported by a major news company.
You Need To Have The Money In Your Account Already
The bank is no fool. If you want a bank draft for a certain amount, then you need that amount in your account already. There may also be a fee for having them write a bank draft. The fee may be taken out when your next statement is generated, but they may take the fee out right away, so you may also need enough money in your account to cover the fee.
It is nearly the same as having the bank write a check for you. For example, you are not able to hand out the bank draft to anybody. You need to add the name of the person or company that is going to receive the bank draft and cash the bank draft.
Use A Bank Draft For Making Expensive Purchases
A bank draft may represent many thousands of dollars, whereas a money order has limits set by the government. If you are making a large purchase, you may not be able to pay with a money order and may have to pay with a bank draft.
A money order is bought with hard cash, whereas a bank draft is bought with digital money that is currently in your bank account. Since money orders are easier to get, you should probably consider a money order if you are making a smaller and less expensive purchase. If your expensive purchase price is in the hundreds and/or thousands, then a bank draft is better than a money order.
Conclusion – Should I Start Using Bank Drafts?
Bank drafts are a very secure form of payment and they especially suit sellers because it guarantees payment. However, there are so many alternatives to bank drafts these days that they are eventually going to go the same way as paper checks.
For example, a person may buy using PayPal, which protects both the seller and the buyer. People may also pay with their debit or credit card these days because it is so easy for online and offline sellers to take card payments. In addition, many credit cards come with extra security that may help compensate a person who is scammed or ripped off by a merchant/seller.
If you are dealing with a large amount of money and you have no prior relationship with the seller, then a bank draft may be suitable. However, you should consider some form of escrow if your purchase will cost thousands because it may offer you more protection as a buyer. There are also quite a few escrow alternatives (buying with PayPal is one of them) where buyer protection goes hand in hand with helping prevent fraud on the part of the buyer; as you should remember that escrow often comes with high fees. Should you start using bank drafts? I say that there are better alternatives, but that you shouldn’t rule it out as one of your payment options.