If you're managing finances in Canada, especially as a newcomer or when making large purchases, understanding bank drafts is essential. These guaranteed payment instruments play a crucial role in secure transactions, from buying a car to placing a deposit on a home. Whether you're new to Canadian banking or simply exploring payment options, knowing how bank drafts work can help you make informed financial decisions.
Bank drafts are particularly important because they provide a level of security that personal checks can't match. As more Canadians engage in high-value transactions, having a reliable payment method backed by a financial institution becomes increasingly valuable. According to RBC Royal Bank, bank drafts are one of the most trusted payment methods for significant purchases.
Ready to understand everything about bank drafts in Canada? Let's dive in!
What Is a Bank Draft?
A bank draft is a guaranteed form of payment issued by a Canadian financial institution. When you request a bank draft, the funds are immediately withdrawn from your account and guaranteed by the bank. This makes it much more secure than a personal check since the payment is pre-authorized and guaranteed by the issuing bank.
How Bank Drafts Work
- Funds are withdrawn from your account immediately upon draft issuance
- The bank guarantees the payment to the recipient
- Drafts typically clear within 24 hours once deposited
- Can be issued in various currencies for international transactions
Getting a Bank Draft
To obtain a bank draft, you'll need to visit your local bank branch with:
- Valid ID
- Your bank account information
- The exact amount needed
- Recipient's name
- Payment for any applicable fees
Costs and Considerations
Most Canadian banks charge approximately $9.95 per bank draft, though fees can vary by institution. If you're new to Canada, you might be eligible for special banking packages that include free bank drafts. Learn more about banking options through our guide to best bank accounts in Canada.
Security Features
Bank drafts come with several security features:
- Watermarks and security paper
- Bank verification stamps
- Unique serial numbers
- Official bank signatures
Using Bank Drafts as a Newcomer
For newcomers to Canada, bank drafts are particularly useful for initial setup costs like rental deposits or vehicle purchases. According to BMO's newcomer services, you can easily obtain bank drafts once you've opened a Canadian bank account. New residents might want to explore our guide on opening your first bank account in Canada.
Final Words
Bank drafts remain one of the most secure and reliable payment methods in Canada, especially for large transactions. Whether you're a long-time resident or new to Canada, understanding how to use bank drafts effectively can help you manage your finances more securely. Remember to keep your bank draft safe until delivery and always obtain it from a reputable financial institution.
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Frequently Asked Questions
How much does a bank draft cost in Canada?
Bank drafts in Canada typically cost around $9.95 per draft, though fees can vary between different banks. Some financial institutions may offer free bank drafts depending on your banking package, particularly through special newcomer offers.
How long does it take for a bank draft to clear?
Bank drafts usually clear within 24 hours after being deposited, which is faster than personal cheques. This quick clearing time is possible because the funds are guaranteed by the issuing bank.
What happens if I lose my bank draft?
If a bank draft is lost or stolen, you may need to provide a bond of indemnity to get a replacement. Since the bank draft becomes the purchaser's responsibility after issuance, it's important to ensure secure delivery to the recipient.
Who can get a bank draft in Canada?
Bank drafts are available to all Canadian residents and newcomers who have an account with a Canadian financial institution. Newcomers can obtain bank drafts after opening an account with valid immigration documents such as a Permanent Resident Card or work/study permits.
