Understand Difference

Bank Draft vs Certified Cheque: Which is the Better Payment Option?

Introduction to

Bank Draft and

Certified Cheque

When it comes to making a payment to someone, there are several options to choose from. Two options that people often consider are bank draft and certified cheque.

Both these payment methods are commonly used by bank customers to pay for their purchases or services, but not everyone understands what these terms mean. This article aims to provide an introduction to bank draft and certified cheque and differentiate between the two.

We will discuss what bank draft and certified cheque are and how they work, as well as their similarities and differences. By the end of the article, you will have a better understanding of these payment mechanisms.

Certified Cheque

A certified cheque is a payment facility that provides the drawer with a bank guarantee that the cheque will be honoured, provided there are sufficient funds in the account. This type of cheque can be used when making a large purchase, such as a car or a house, or when the recipient requires a higher level of assurance that the payment will clear.

How Does

Certified Cheque Work? When the account holder requests a certified cheque, the bank officials will review their account to ensure that they have sufficient funds to cover the payment amount.

Once the funds are confirmed, the bank will set aside the amount and mark the cheque as certified. This process provides the recipient with a guarantee that the cheque is good and will be honoured by the bank, even if the account holder has insufficient funds in their account at the time of deposit.

Difference Between

Certified Cheque and

Bank Draft

While both certified cheques and bank drafts are payment mechanisms, there are a few differences between them. Here are some key distinctions:

Account Holder: With a certified cheque, only the account holder can request the cheque, as the bank must verify that there are sufficient funds in the account to cover the payment.

However, anyone can request a bank draft, regardless of their account status. Bank Officials: The certification process for a certified cheque is carried out by bank officials, while a bank draft is created by the bank and paid from the bank’s account.

Higher Fee: A certified cheque typically incurs a higher fee than a bank draft, as there is extra work involved in reviewing the account and setting aside funds for the payment. Stop Payment: Once a certified cheque has been issued, it cannot be cancelled, whereas a bank draft can be stopped at any time before the payment has been made.

Payment Guarantee: A certified cheque provides a payment guarantee from the bank, while a bank draft provides a payment guarantee from the bank and the drawer.

Bank Draft

A bank draft, sometimes referred to as a cashier’s cheque, is a payment mechanism that is similar to a certified cheque. A bank draft is a cheque that is created and paid from the bank’s account, rather than an individual’s account.

How Does

Bank Draft Work? When an individual requests a bank draft, they must provide the bank with the payment amount and any necessary details about the recipient.

The bank will create the draft and verify that there are sufficient funds in its account to cover the payment amount. Once the draft is created and paid, the bank will not return the funds to the individual.

Similarities Between

Certified Cheque and

Bank Draft

While there are differences between certified cheques and bank drafts, there are also some similarities:

Payment Mechanisms: Both certified cheques and bank drafts are payment mechanisms that provide a guarantee of payment. Security: Both certified cheques and bank drafts are secure payment methods, as they both require the bank’s involvement.

No Bounced Cheques: Both certified cheques and bank drafts help to prevent bounced cheques, which can be a hassle for both the drawer and recipient.

Final Thoughts

In conclusion, bank draft and certified cheque are two payment mechanisms that people often use, but are sometimes confused about. Both are secure and provide a guarantee of payment, but there are some key differences between the two.

When selecting a payment method, it is important to understand the differences and choose the one that fits your needs.

Bank Draft

A bank draft is a payment instrument issued by a bank on behalf of an account holder. It is also known as a banker’s draft, bank check, or cashier’s check.

A bank draft is a written order by the account holder, known as the drawer, instructing the drawee bank to pay a specified amount to the payee. The issuing bank of the draft is the bank that guarantees the payment.

How Does

Bank Draft Work? When an account holder requests a bank draft, they must provide the bank with the payment amount and the details of the payee.

The bank will then create a draft and withdraw the amount from the account holder’s account. Once the bank creates the draft, it becomes a payment guarantee from the bank and the account holder.

The bank sends the draft to the payee, who can then deposit it in their bank account. The drawee bank will then process the payment, and the payee will receive the funds.

Similar to certified cheques, bank drafts are secure options for making payments. Unlike personal cheques, there is no risk of bounced cheques, as the funds are guaranteed by the bank.

Concerns with

Bank Draft

One concern with bank drafts is the signature. The signature of the account holder on the draft is essential in validating the payment.

A forged signature can lead to fraudulent transactions, resulting in legal action against the bank, account holder, or drawee bank. Another concern is when someone creates a fraudulent bank draft.

Scammers may create a fake bank draft that appears to be legitimate. Therefore, banks provide certified bank drafts, which are bank drafts that have been officially certified to be genuine by the bank officials.

This certification process ensures that the payee receives a genuine bank draft without any chance of fraud. Differences Between

Bank Draft and

Certified Cheque

Bank drafts and certified cheques are payment options that are often compared to each other. Here are some key differences between the two:

Issuance: A bank draft is created by the account holder and paid from the bank’s account, while certified cheques are created by the bank and paid from the account holder’s account.

Payment Guarantee: Both bank drafts and certified cheques provide a payment guarantee, but bank drafts provide a payment guarantee from the bank and the account holder, whereas certified cheques provide a payment guarantee from the bank only. Bank Officials: Bank drafts require bank officials to create and issue them, while certified cheques require bank officials to certify the cheque.

Account Holder: Anyone can request a bank draft, while only an account holder can request a certified cheque. Fee: Bank drafts typically incur a higher fee than certified cheques, as the bank must put in extra work.

Stop Payment: A bank draft can be cancelled at any time before the payment is made, while a certified cheque cannot be cancelled once it has been issued. Fraud: Certified cheques are more secure against fraud than bank drafts, as the cheques are certified by the bank officials, guaranteeing payment.

Bank drafts can be subject to forgery if the signature is not verified.

Conclusion

Bank drafts and certified cheques are two payment options that have their similarities and differences. Both payment mechanisms provide a level of assurance for payees, as they are secure and guarantee payment.

While certified cheques provide a more secure payment guarantee, bank drafts offer more flexibility and can be issued by anyone. As such, it is essential to understand the differences between the two payment mechanisms and choose the one that meets your needs.

Summary

In summary, bank drafts and certified cheques are payment options available to bank customers. When making a large purchase or needing to guarantee payment, bank drafts and certified cheques are popular options.

While both payment mechanisms are secure and guarantee payment, they have different processes and requirements. A bank draft is a payment instrument created by the account holder and paid from the bank’s account.

The issuing bank guarantees the payment, and the payee receives a payment guarantee from the bank and the drawer. Certified cheques are payment facilities that provide the drawer with a bank guarantee that the cheque will be honoured, provided there are sufficient funds in the account.

Certified cheques are created by the bank and paid from the account holder’s account. The cheque is certified by the bank officials, providing a payment guarantee from the bank only.

Bank officials play a significant role in both payment mechanisms. Bank officials create and issue bank drafts, while they certify certified cheques.

When requesting a bank draft or certified cheque, bank officials will check that the account holder has sufficient funds to cover the payment amount and complete any necessary documentation. Bank officials also verify the signature to prevent fraud.

Sufficient funds are a requirement for both payment options. Before issuing the bank draft or certifying the cheque, bank officials must ensure that the account holder has enough funds to cover the payment amount.

This verification process provides the payee with a guarantee that the payment will be honoured when deposited. Both bank drafts and certified cheques have a payment guarantee, but bank drafts provide a payment guarantee from the bank and the account holder, while certified cheques provide a payment guarantee from the bank only.

This difference in payment guarantee is due to the way each payment mechanism is created and issued. Stop payment is also a factor to consider when choosing between bank drafts and certified cheques.

A bank draft can be cancelled at any time before the payment is made, while a certified cheque cannot be cancelled once it has been issued. This feature provides added flexibility for bank draft users, as they can cancel the payment if they change their minds or if the need for payment no longer exists.

Fraud is a concern for both payment options. Bank officials verify signatures for both bank drafts and certified cheques to prevent fraud.

However, certified cheques are more secure against fraud compared to bank drafts, as the cheque is certified by bank officials, ensuring that the payee receives a genuine cheque without any risk of fraud. In conclusion, bank drafts and certified cheques are two payment options available to bank customers.

While they have similarities and differences, they provide a level of assurance for payees and are secure payment methods. When choosing between bank drafts and certified cheques, it is essential to understand their differences and choose the one that meets your needs and preferences.

In conclusion, bank drafts and certified cheques are two payment options that provide a guarantee of payment for bank customers. While both options are secure and offer reassurance to payees, there are important differences to consider when choosing between them.

Bank drafts are created and issued by the account holder, while certified cheques are certified by bank officials. Bank drafts offer greater flexibility with the option to stop payment, while certified cheques provide a higher level of security against fraud.

Understanding these differences is crucial for making informed decisions when it comes to choosing the appropriate payment method. Whether utilizing a bank draft or a certified cheque, bank customers can confidently make payments, ensuring that their financial transactions are secure and reliable.

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