Bank drafts and checks both draw from available funds in a personal or a business bank account. However, the process each one follows to achieve the same objective is significantly different. Understanding how these two payment methods work is vital to choosing -- or requiring -- the right one for your situation.
How They Work
Bank drafts and checks differ mainly in who issues the check and at what point the bank withdraws funds form your account to cover the check.
With a bank draft, a teller or other banking representative acts as an intermediary. The financial institution issues a bank draft upon your request, but only after verifying that your account has sufficient funds to cover the check. At that time, the bank reduces your available balance by the amount of the draft and designates it as a pending transaction. The transaction will complete when the recipient deposits or cashes the draft.
In contrast, there is no intermediary with a personal check. You are the issuer, and also the person guaranteeing funds are available to cover the payment. The bank won’t withdraw funds to cover the check until the recipient presents it for payment. Therefore, it’s up to you to track your bank account balance by the amount of the check and make sure there's enough in your account to cover it.
Because a bank draft is a highly secure payment method, a seller with whom you don’t have a personal relationship, a creditor, or perhaps even your landlord may require a bank draft instead of a personal check. For example, when you’re purchasing a home, the lender may require you to pay closing costs using a bank draft instead of a personal check. A landlord may require that you make rent payments using a bank draft instead of a check if you've had a previous personal check bounce due to insufficient funds.
Stop Payment Orders
Unlike with a personal check, which you can stop payment on immediately after issuing it if the need arises, you usually can’t stop payment on a bank draft unless it’s been lost, stolen or destroyed. According to TD Bank, even then the bank most likely won’t refund the money but will instead issue a replacement draft instead.