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Similar to a cashier’s cheque, bank drafts are typically used for large payments overseas. Although it isn’t the quickest way to send money, bank drafts are accepted in most countries and still used frequently.
A bank draft is a payment issued by a bank on behalf of the payer, which allows another bank to draw funds directly from the bank issuing the draft. International bank drafts are often used for remittances because the bank draft is immediately converted into a foreign currency when it’s created, unlike a regular cheque.
Bank drafts are often confused with cashier’s cheques and money orders, but have key differences that give bank drafts the advantage when used for international transfers:
A bank draft is effectively a cheque from a financial institution. This means the funds for the transaction are withdrawn from the institution rather than from the cheque drawer’s account.
This offers an important benefit over an ordinary cheque from an individual. The funds from a normal cheque are not withdrawn from the drawer’s account until the cheque is cleared, which means there may not be sufficient funds available when the cheque is cashed and it may therefore bounce.
With a bank draft, however, when a person requests one they must immediately transfer the funds from their account to cover the amount of the cheque. This adds a crucial extra level of security over a normal cheque.
Drafts can be drawn in the foreign currency you choose and are available for personal or business use.
Let’s say you need to send $1,000 to family in Mexico. This example is in USD. Here’s what you might face as far as costs when using a bank draft compared to an international money transfer as of September 14, 2020.
|Money transfer||Bank draft|
|Fee||$0||$30 + receiving bank fees|
|Exchange rate||1 USD = 21.035 MXN||1 USD = 19.933 EUR|
|Transfer speed||1-2 days||1-3 weeks, depending on mail|
|Amount received||MXN 21,035||MXN 19,335|
The bank draft ends up being the slowest and gets the smallest amount of money to your recipient in Mexico. If you go with the money transfer service, your recipient ends up with MXN 1,700 more than the bank offers. If speed is crucial, a cash transfer can typically have your transfer to MExico in as little as 15 minutes — just make sure there’s a cash pickup location near your recipient before sending.
Bank drafts are cashed just like any other cheque, but must be deposited into your bank account. Cash your bank draft in a variety of ways, including:
Bank drafts are secure ways to send money. But when sending an international transfer, you have to rely on the postal service to deliver the bank draft safely. Many things can go wrong along the way, and even when everything goes right, there will still be a significant delay between sending and receiving the bank draft.
Consider using an international money transfer service instead of a bank draft when speed and convenience are crucial.
The transfer services below are not bank drafts, but rather allow you to make bank transfers which can be received by your recipient in their bank account or as cash. Consider using these services when:
There are a couple of factors to keep in mind when comparing bank drafts, to make sure you end up with the most cash in your pocket.
Bank drafts have their time and place, but as the financial world shifts more and more into the digital realm, bank drafts may become obsolete. There are many ways to send money internationally that can be done entirely online — to learn how to get started with international money transfers, head over to our guide on transferring money.
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