Understanding a bank draft
Useful information about bank drafts. Bank drafts are guaranteed if it is genuine
Why might I need a bank draft?
If you intend to make a large purchase such as a car, the seller may ask for the purchase price to be paid by bank draft. This can be useful because the person to whom it is made out has the advantage of knowing that it will almost certainly be paid.
Provided the draft is genuine and has not been lost or stolen, payment will be guaranteed (if it is fraudulent or conterfeit it will not be paid). This is important if you are selling valuable goods or exchanging valuable documents e.g. cars or houses.
What is a bank draft?
It may look, at first glance, like a cheque but it is drawn on a banks head office. Be aware that:
- It may require two signatories (but not always, some require only one). These will generally be bank managers;
- The bank issuing the draft will have its name and possibly a hologram printed on the front or back of the draft;
- It can be for any amount;
- The customers name will not appear on the bank draft;
- The bank draft will be made out to the person who is to receive the money, not the customer.
How do I get a bank draft?
A bank will issue a bank draft when asked by a customer (there may be a written application form which the customer will have to complete) and it will be used for pre-arranged transactions, e.g. car purchase, house purchase. The customer will be charged a fee. The fee can be found in the banks tariff of charges.
The bank which issues the bank draft will check that the customer has the necessary funds available to cover the amount of the bank draft. The customers account will be debited with the amount of the draft.
The bank draft should not be altered or amended in any way.
The bank may ensure that draft is crossed and the words account payee not negotiable are added.
If someone offers me a bank draft, what should I do?
Bank drafts are cheques drawn by a bank usually on its own Head Office. Payment is guaranteed provided the draft is genuine and has not been lost or stolen. If it is fraudulent or conterfeit it will not be paid.
Drafts go through the normal clearing process like any other cheque and if you are offered a bank draft in payment, don't release the goods until you are sure the draft is genuine and has been paid.
If you are selling a car or similar expensive item, beware of the who turns up without notice after the banks have closed – usually a Friday. If the "buyer" offers a bank draft, already made out in your name for the full asking price and wants to take the item straight away (usually he/she says that they live at the other end of the country and are travelling back home that night or the next day), it is highly likely that you could be the potential victim of a fraud attempt.
Ask yourself whether the situation seems logical – would you for instance go to the trouble of getting a bank draft to buy an item without even checking its condition – or even whether it was still for sale? Better to have lost a sale rather than the item itself.
There are alternative ways of transferring money, such as via CHAPS same-day electronic transfer of funds between UK banks. This may be more expensive though check with your bank first about cut-off times for receiving value on the same day. For more details see the information sheet on Understanding the Cheque Clearing Cycle (see link below).
Be aware that not all banks use identical wording and there may be small variations. If in doubt, check with your bank.
Understanding the cheque clearing times (Internal Link)