What Is the Difference Between a Bank Draft & a Check?

There are many ways to get money out of a bank account and issue payment to someone for goods or services. The most common methods are checks written on checking accounts and bank drafts. A person may choose one method over the other depending on whether or not she has a checking account with the institution or how quickly she wants the funds to be available to the party receiving the check.

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Defintion of a Check
- A check is an official note that is written by an account holder on funds he has in an account held at an institution.
Definition of a Bank Draft
- A bank draft, otherwise called a cashier check, is an official note that is written by a bank from funds verified in an account by the bank prior to issuing the bank draft. The person requesting the bank draft makes the cashier check out to the party who is to receive it.
Guaranteeing Parties
- A check is guaranteed by the person who is writing it and can be returned for insufficient funds if the person is overdrawn on her checking account. A bank draft is guaranteed by the bank that has already verified the amount of money is covered by the person requesting the bank draft.
Holds
- Checks can be held by the receiving bank until the money is verified to be good. Personal and business checks tend to have longer holds than bank drafts, which are considered more reliable giving depositors faster access to the funds.
Secondary Use
- Some institutions, such as credit unions, will use bank drafts to pay a payee for a payor's loan. For example, a person may buy a used car for $5,000 and get a loan for the amount, which issues a bank draft for the loan to pay the dealership.

Investor Glossary - Bank Draft

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What Is the Difference Between a Bank Draft & a Check?

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Defintion of a Check

Definition of a Bank Draft

Guaranteeing Parties

Holds

Secondary Use

References

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