How Bank Drafts Work

Also known as cashier's checks or money orders, bank drafts offer a secure way to transfer funds. It works like a regular check, but offers extra assurance that the money will come through. If you have a transaction that involves a large amount of money, it is more secure to request a bank draft instead of a personal check.



Instead of writing a check from your personal checkbook, the party that sends the money has to talk to his bank to get a bank draft. He need to have at least as much money in his bank account as the amount he wants to transfer using the bank draft. His bank first reviews his account to check that he has sufficient funds and sets aside the money for the bank draft, then prints the amount and the name of the recipient on the bank draft.

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After the sender obtains a bank draft, he gives it to you. You can then deposit the bank draft at your bank, which can be the same bank as the sender's or another bank. Your bank draws the money from his account and deposits it into your account.



A check can bounce if the sender don't have enough money in your bank account to cover the check amount. After writing a check, the sender can also cancel it if you have not drawn the money. A bank draft will not bounce because the bank has already set aside the money for it. As such, bank drafts are useful for large transactions where the recipient needs assurance that he will get the funds.


Despite the extra security that a bank draft offers, it still carries some risk because criminals can print counterfeit bank drafts that look real. A common scam is for the victim to receive a bank draft. The scammer then asks the victim to keep a portion of the money and transfer the rest elsewhere. For example, the scammer may claim that the bank draft amount is a portion of the victim's lottery winnings and ask the victim to send processing fees to get the rest of the winnings. When the victim's bank realizes that the bank draft is counterfeit, the bank takes the amount credited to the victim's account. The victim loses the money he sends to the scammers.