What is the Difference Between Bank Draft and Certified Cheque?

The main difference between a bank draft and a certified cheque lies in the way the funds are withdrawn and the level of guarantee they provide. Here are the key differences:

1. Issuing Entity: A bank draft is issued by a bank at the payer's request, while a certified cheque is issued by an account holder with a bank.
2. Funds Withdrawal: In the case of a bank draft, the requested amount is withdrawn from the payer's account and put on hold. In contrast, a certified cheque does not withdraw the funds until the cheque is deposited. Instead, the bank employee verifies the availability of funds and sets aside the amount, signing or certifying that the amount is available.
3. Guarantee: A bank draft carries a guarantee of funds from the financial institution, ensuring that the recipient will receive the payment. A certified cheque, on the other hand, is not guaranteed by the bank but is certified by the account holder's bank to confirm the availability of funds.
4. Usage: Both bank drafts and certified cheques are used to pay for goods and services, but they differ in the way they guarantee payment. Bank drafts are generally recommended for larger transactions, such as several thousand dollars, while certified cheques are used for smaller transactions.

In summary, a bank draft is a payment instrument issued by a bank that guarantees the availability of funds, while a certified cheque is a personal cheque guaranteed by the account holder's bank, with the funds being withdrawn only when the cheque is deposited.

Comparative Table: Bank Draft vs Certified Cheque

Here is a table comparing the differences between a bank draft and a certified cheque:

Both bank drafts and certified cheques are secure alternatives to cash, but they differ in terms of issuing entity, funds availability, cancellation, risk of fraud, and fees.