Difference Between Bank Draft vs Certified Cheque
In business and in personal life, we do various type of transactions and to successfully complete those transactions, we need to pay the corresponding amount to other parties. To fulfill the obligation of paying back, there is a myriad of options available at our disposal. For example, When someone buys something online, he/she can pay via your credit cards, debit cards or can pay on delivery etc. Similarly, in businesses, when someone buys some raw material from their supplier, they usually pay them via cash or instruments like bank draft, cheques etc. When the amount involved in the transaction is substantially high and both the parties want to complete the transaction securely, certified cheques and bank drafts are used. Both of these instruments verify the funds available and treated as the equivalent of cash. Let us have a closer look at both Bank Draft vs Certified Cheque.
A Bank Draft is a mode of payment wherein the issuing bank guarantees the payment of the amount on behalf of the payer. In order to request a Bank draft from the Bank, the payer has to have an account with that bank. Then once the bank received the request, they usually review the account details of the payer to check whether it has sufficient funds or not. After that, the bank will freeze that amount from the account so that payer cannot use that amount and amount payable to the payee is secured. Then after that, they issue the bank draft. Once the bank draft is issued, it is not possible to cancel the draft. This is simply because the transaction has already occurred earlier when that amount was set aside from payer’s account. It can only be canceled in case it has been lost or destroyed or stolen.
A certified check is a cheque signed by the payer and guaranteed by the bank that in payer has sufficient balance in the account to cover the amount. It is a safer version of regular cheque since the bank itself is checking and guarantying the availability of the funds. In the case of certified cheques, most of the time but not always, banks set aside the stipulated amount. Similar to bank draft, once issued, this cheque cannot be reversed or stopped.
Head to Head Comparison between Bank Draft vs Certified Cheque (Infographics)
Below is the top 5 difference between Bank Draft vs Certified Cheque
Key Differences between Bank Draft vs Certified Cheque
Let us discuss some of the major differences between Bank Draft vs Certified Cheque:
- As discussed earlier, both bank draft vs certified cheque is used to transfer funds to the payee when the amount in bigger, both the parties only have a professional relationship and safety of the funds is a priority for both of them.
- Using any of these two methods for fund transference will limit the risk of cheque or draft getting bounced since they are backed and guaranteed by the respective banks.
- Both bank draft vs certified cheque cannot be cancelled or stopped. In both the cases, first, the amount gets blocked/set aside by the bank and then transferred to the payee. So it means that the transaction was already occurred at the time when the bank allocated that funds. So once written they cannot be taken back unless there are some unprecedented circumstances.
- Although in both the cases, usually bank keep aside the stipulated amount, sometimes, banks do not perform this step in case of a certified cheque. When the payer writes the certified cheque, the bank will review the balance and gives the green signal if funds are sufficient. They will not keep aside the money and it can happen that payer has withdrawn the money afterwards (very rare case). In the case of Bank draft, it is the responsibility of the bank that the payee should receive the money, so they will keep aside the funds from the account.
- In the case of certified cheque, it is written by the payer and backed by the bank. Bank will not write that on behalf of a payer. But for bank draft, a bank will make that draft on behalf of payer and also guarantees the payment.
Bank Draft vs Certified Cheque Comparison Table
Let’s look at the top 5 Comparison between Bank Draft vs Certified Cheque
|It is a secure medium to pay they payer since the payment is guaranteed by the bank||It is a secure medium to pay they payer since the payment is guaranteed by the bank|
|Payer should have an account in the issuing bank and should have balance in the account to cover the amount of draft.||The payer should have an account in the bank which is giving the guarantee and should have balance in the account to cover the amount of draft.|
|Issuing banks keep aside the stipulated amount so that the payment is secured||Issuing banks usually, but not always, keep aside the stipulated amount so that the payment is secured|
|Once issued, it cannot be reversed except for some exceptional circumstances||Once issued, it cannot be reversed except for some exceptional circumstances|
|It is written by the bank on behalf of the payer||It is written and signed by the payer but certified by the bank|
Conclusion – Bank Draft vs Certified Cheque
In terms of functioning and operating, both bank drafts vs certified cheques work in similar fashion. The main goal of these two instruments is to give additional comfort and reassurance to the person who is going to receive that the payment and is rest assured that the payment will be honored. Although these two have some small dissimilarities among themselves, they are more of two similar branches of the same tree.
This has been a guide to the top difference between Bank Draft vs Certified Cheque Here we also discuss the Bank Draft vs Certified Cheque key differences with infographics and comparison table. You may also have a look at the following articles to learn more.