BREAKING DOWN 'Bank Draft'

Obtaining a bank draft requires depositing funds equal to the check amount and applicable fees with the issuing bank. The bank creates a check to the payee drawn on the bank’s own account. The remitter’s name is noted on the check, but the bank is the entity making the payment. A bank cashier or officer signs the check.

Because the money is drawn upon and issued by a bank, a bank draft guarantees the availability of the underlying funds. Buyers or sellers make or require payments through bank drafts as a secure method of payment.

Advantages of a Demand Draft

- A cheque payable to particular beneficiary drawn on our correspondent bank. 
- In any major currency for any amount. 
- Payment guaranteed by the issuing bank. 
- A secure form of payment as the demand draft is payable to the specified payee. 

Most frequent uses of Demand Draft: 

- International Education Fee Payments
- Medical Expenses Abroad
- Immigration Fee
- Consultancy Fee

Bank Draft Examples

A bank draft is required by a seller when the seller has no relationship with the buyer; a transaction involves a large sale price; or the seller believes collecting payment may be difficult. For example, a seller requires a bank draft when selling a home or automobile. A seller might not collect funds with a bank draft if the bank becomes insolvent and does not honor outstanding drafts, or if the draft is fraudulent.

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RTGS systems are typically used for high-value transactions that require and receive immediate clearing. In some countries the RTGS systems may be the only way to get same day cleared funds and so may be used when payments need to be settled urgently. However, most regular payments would not use a RTGS system, but instead would use a national payment system or network that allows participants to batch and net payments.