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চারপাশWhat is Bank and What are the types of Bank? Top 6...

What is Bank and What are the types of Bank? Top 6 types

the main types of bank draft are
the main types of bank draft are

While some people might prefer to pay with cash, this is not very secure, especially when large amounts of money are involved. In addition, getting a secured draft provides a record of the transaction should there be any question about it, whereas cash does not. The draft is usually made out to the individual to whom the payment is made, and this is also recorded. How much cash was withdrawn from the requester’s account is listed on bank records, although it may not be possible to prove that the money was then given to a third party. A bank draft is one of the common means of payment transactions being used throughout the world.

Consumers have several avenues available when they need secure, certified payment options. They may require them to secure an apartment or for a deposit for a very large purchase. Certified payment options give the payee security, knowing that the funds are available.

In other words, the bank becomes the payee instead of the customer. Since bank drafts represent a transaction that has already taken place, it cannot be canceled once it is delivered to the payee. If the bank draft gets destroyed or stolen before being delivered to the payee, the buyer can go to their bank to get a new draft and cancel the existing one.

  • Work with their financial instruments, which are exercised there.
  • One of the benefits that make bank drafts a more suitable means of transaction is ease and convenience.
  • This validity term will be specified for a specific length of time, often three or six months.
  • Generally speaking, you won’t be able to cancel bank drafts once they’ve been issued.

Experts recommend caution when accepting a bank draft as payment, particularly during times when financial institutions are typically closed, such as on a Friday night or a weekend. Payment that is offered for goods before the potential buyer has even seen them should also be suspect. A potential buyer who shows up with a bank draft in hand on a Sunday morning to buy a car from a private seller without even asking to test drive the car is probably up to no good.

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Today, this strategy is used for a large number of financial transactions. Wire transfers are quicker and more practical for time-sensitive transactions, whereas bank drafts are more secure and frequently utilized for large transactions. The customer can fill out a form specifying the transaction’s amount in person at a bank, credit union, or other financial institution. The bank will then examine the customer’s account to ensure that there is sufficient money before approving the transaction. A bank draft — also referred to as a bank check, banker’s draft, or teller’s check — is a financial instrument that a bank issues on behalf of its customers.

the main types of bank draft are

This sort of transaction comprises a huge sale price; or else the seller may believe that collecting the payment could turn out to be difficult. Keep in mind, however, that you’ll pay a fee each time you go through this process. And if you receive drafts from banks outside your network, fees can potentially be higher. Fortunately, most major financial institutions are FDIC-insured, protecting against insolvency or insufficient funds. The bank will withdraw the requested funds from the customer’s bank account and deposit them into a separate account owned by the bank. This step means that technically the bank, rather than the customer who made the initial request, becomes the paying party.

The makers of this promissory note are jointly liable for the payment. So, it can be transferred from one person to another in the settlement of debts. Customers enjoy greater access round the clock and do not have to visit bank premises. It also removes geographical distance in the case of certain banking transactions.

These banks deal in transactions involving Foreign Exchange. Buying and Selling of Foreign Currency is their main function. Such financial assistance is provided by development banks.

In this article, we will discuss about bank drafts and money orders. Although they are less common now than they were in the past, you may still encounter them when completing a purchase or a payment. There is still a chance that they may be confused for one another, despite their differences. Customers and merchants alike in the current world have a plethora of options when it comes to how they might make a purchase.

Money order versus bank draft, certified check

The primary distinction is that a cheque is issued by a bank’s client and is not guaranteed. In contrast, drafts are issued by the bank and are guaranteed by the bank. One of the benefits that make bank drafts a more suitable means of transaction is ease and convenience.

the main types of bank draft are

Bank drafts—also called banker’s drafts, bank check, or teller’s check—are just like cashier’s checks. They are secure payment options that are guaranteed by the issuing bank—in many cases, for a large amount of money. When a customer requests a bank draft, the representative ensures they have enough money in their account to cover the amount requested. Once verified, the bank withdraws the funds from the customer’s account and transfers it to a general ledger or internal account. The bank prepares the draft with the payee’s name and the amount. Since the funds are already withdrawn from the requesting customer’s account, the issuing bank ultimately becomes the payer.


In some institutions, you can send an application for a bank draft by e-mail. It is usually not necessary to have an account to cash a bank draft. The payee can typically take it to any bank and be given the amount of the check in cash. If the draft is for a large amount, however, the bank may require it to be deposited directly into a checking or savings account. It may be possible for the payee to open an account, however, so that he or she can access the money.

Funds can be transferred in various modes such as IMPS, NEFT, RTGS, draft pay orders, etc., for specified commissions. Small Finance banks cover small and micro business units, marginal and small farmers, and various entities in the unorganized sector. If the non-negotiable portion has not been retained, the bank may try to trace the account’s actions. You may be offered to redeem the non-negotiable portion under certain conditions. In doing so, you will have to pay an additional bank draft TD fee and wait a few weeks for the transaction to be completed.

Credit Instrument # 5. Promissory Note:

The complete amount of the draft is normally pulled from the requesting payer’s account and stored in a general ledger account until the beneficiary pays the draft. Bank drafts offer a safe and secure method of payment to the beneficiary. A bank draft, bank cheque or banker’s draft is a cheque that a bank issues to a customer that the main types of bank draft are has been drawn by the bank. This is a transaction initiated by the bank as the recipient has already paid the amount and the charges involved. A bank draft means that the money has already been withdrawn by the bank. In other words, there is no possibility the cheque will bounce; this is not possible with personal cheques.

The deposits that are taken by the commercial banks are further invested by way of granting loans to their customers. However, the lending of funds may take different forms such as cash credit, advances, discounting bills, overdraft, etc. A wire transfer allows you to transfer money from one account to another. You’ll simply need the recipient’s banking data to make the transfer, though if you transfer funds between different financial institutions you’ll have to pay an additional fee. But a draft is backed by the customer’s bank, which has already withdrawn the necessary funds.

It is only payable in full after a certain amount of time when the goods are received by the payee. The buyer can use a sight demand draft to transfer funds to the seller instantly so the seller can immediately transfer the title of goods to the buyer. A slight demand draft is payable immediately, and it is often used when purchasing goods internationally.

In addition, it verifies the authenticity of the account holder’s signature on the cheque. Banks verify and withdraw funds from the requester’s account and deposit them into an internal account to cover the amount of the draft. Tom Drake is the owner and head writer of the award-winning MapleMoney. With a career as a Financial Analyst and over a decade writing about personal finance, Tom has the knowledge to help you get control of your money and make it work for you. When a promissory note is made by two or more persons and the makers of the promissory note are liable jointly and severally, it is called a joint and several promissory note. Payee is the person to whom the promise is made for the payment.

However, the bank official’s sign and seal make it more secure. A bank draft or banker’s cheque is popular for its authentication and no risk factor. There are two situations in which a seller may not succeed in collecting funds under a bank draft. The first case is when the issuing bank goes bankrupt, so that it is not honoring any outstanding drafts. The second case is when the draft is fraudulent, and so was not actually prepared by a bank.

Transverse lines are not compulsory in case of a special crossing. When there are insufficient funds to the credit of the drawer. A cheque to be valid must be made payable to, or to the order of a certain person or to the bearer of the instrument. They may be redeemed at any of the area’s banks or credit unions. Mobile banking app is an online portal of a bank, similar to internet banking.

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