Differences in Bank Drafts & Checks
Bank drafts, often known as certified checks in the United States, are a type of check that is guaranteed by the bank issuing it. This means that the bank has examined the checking account and found that there are sufficient funds to pay for the check when it is cashed. This means that the bank draft must be issued for a certain amount, and that the bank must set aside the required funds within the checking account to ensure it will be there when the check is cashed.
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Cashier's Check
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Bank drafts are very similar to cashier's checks, and in America cashier's checks or certified checks take the place of bank drafts, which is a term used most often in the U.K. A cashier's check is bought by the remitter, who purchases the checks directly from the bank, allowing the bank to guarantee that the funds are available. Essentially, the bank is paying for the check with cash it received from the remitter, instead of using the remitter's own funds. Certified checks, on the other hand, are much more similar to bank drafts, which are explained below.
Bank Drafts
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A bank draft is a type of check that is made out to a specific amount, which the person requesting the check can specify in order to be sure that there is enough money in the checking account to make the transaction. The bank, when asked for a bank draft, reviews the account to make sure there are enough funds for the check, then seals or sets aside those funds so they cannot be used for anything else. When the check is issued to the person requesting it and subsequently used for payment, it is certain that there is enough money to pay for the check when it is cashed.
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Personal Checks
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Banks do not set particular sums on personal checks, and they do not need to be requested from the bank in order to be received. Instead, the person writing the check specifies the amount, and the bank is only made aware of the check when it is electrically sent or cashed by hand. At this time they review the account and draw out the necessary funds. The funds may not be present, in which case the check is bounced.
Uses
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Since bank drafts represent money specifically set aside, there is no danger that they will bounce and return like a personal check. For this reason, bank drafts are often requested when there is doubt that an individual can make a payment, or when an entity needs to be absolutely sure they will receive money for the check when they need it. Bank drafts are common when very large amounts of money are being exchanged.
Check Draft
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The term bank draft should not be confused with the term check draft. A check draft, also known as a demand draft, is simply a draft of a check created by the merchant in place of a personal check. These are common when paying for items by check over the phone or online. They have no relation to bank drafts.
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