Bank Draft vs Certified Cheque

Difference Between Bank Draft and Certified Cheque

Bank Draft is a financial instrument issued by bank in favor of a specified entity on the request of the payer where payment is already received by the bank and the amount is transferred to that entity when it is presented whereas a certified cheque is issued by someone who has an account with the bank in favor of payee where the amount is transferred from that account to the payee after the presentation given the availability of funds of the issuer.

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Certified cheque and bank drafts are some of the services provided by banks to its customers which help them pay for goods and services. Though they sound similar there are a number of points in which they differ. Both of these instruments draw from available funds in the bank account. The goal is the same however the method to achieve the same objective is different. Understanding how these instruments work is important in choosing the right one for your situation.

Nowadays many businesses accept card payments but there are times when a negotiable instrumentNegotiable InstrumentA negotiable instrument refers to the transferrable and signed written document whereby the payer guarantees or promises to pay a certain sum on a specific future date or as on-demand to the payee or bearer. It includes bills of exchange, delivery order, promissory note, customer receipt, etc.read more like a certified cheque and bank draft are requested. Both are treated as equivalent to cash.

The main difference is mainly on the basis of who issues them and at what stage the bank withdraws the amount from the account to cover the cheque.

Bank Draft vs Certified Cheque Infographics

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Key Differences

The key differences are as follows –

  • The key difference is that a certified cheque is used by its customers for payment of goods and services and a bank draft is an instrument which can be used for the same except that bank provides it
  • The account holder is the drawer of the cheque. On the other hand, in the case of a bank draft, the bank issues it. The holder requesting is a drawer and the party receiving is a payee
  • For a bank draft, a signature is not required on the other hand certified cheques require a signature and are processed when the bank employee certifies it. Which means enough funds are available to process the certified cheque
  • Like the above point suggests a certified cheque is charged more than a bank draft since it is certified and also signed. Bank draft are prone to fraud and can also be misused hence the fees charged for them is also lower
  • Particulars required in a bank draft are a date, the amount payable and payees name. Similar to this, particulars required for a certified cheque are date, name, amount (in words as well as in the figure) as well as signature
  • The process followed by a bank draft is as follows –
    1. In case of a bank draft, there are banks representatives who act as an intermediary.
    2. Bank issues draft on your request but processes it only after verifying that the account has sufficient funds to cover the cheque.
    3. At this point, the bank deducts the amount from your bank account.
    4. The process is complete once the recipient deposits or cashes the draft
  • The process followed for a certified cheque is as follows –
    1. In the case of certified cheque, there is also an intermediary involved which is the bank employee
    2. The bank employee checks if the issuer has sufficient funds in the account
    3. After it is confirmed the employee processes it. The amount is deducted after the employee certifies it

Bank Draft vs Certified Cheque Comparative Table

BasisBank DraftCertified Cheque
Key difference
Bank draftBank DraftA bank draft is a financial instrument purchased from a bank remitted later by a second party to withdraw the amount mentioned on the draft from any bank, guaranteeing that the draft holder shall receive the said amount on presenting the draft. It is also called a banker's cheque.read moreA bank draft is a financial instrument purchased from a bank remitted later by a second party to withdraw the amount mentioned on the draft from any bank, guaranteeing that the draft holder shall receive the said amount on presenting the draft. It is also called a banker's cheque.read moreA bank draft is a financial instrument purchased from a bank remitted later by a second party to withdraw the amount mentioned on the draft from any bank, guaranteeing that the draft holder shall receive the said amount on presenting the draft. It is also called a banker's cheque.read more are issued by banks and are guaranteedCheques are issued by customers and are not guaranteed however a certified cheque is similar except that the bank employee verifies if the fund is available to make a payment keeps that amount aside and then signs or certifies that the amount is available
MeaningA bank draft is a payment instrument that is issued by the bank on request of the payerIt is a payment instrument that allows businesses and individuals to settle transactions. This facility is provided by the bank where the drawer’s account is present
IssuerA bank draft is issued by the bank on request from its customers. Bank directly makes transfers to the bank account which may be in the same bank or another bankThe certified cheque is issued by a customer who holds an account in the bank and orders the bank to make a payment to the specified person or to the bearer of the cheque
SignatureBank Draft does not require a customer’s signature. However, there is a certified bank draft which is signed by the bank official which makes it more secureCertified cheque requires customers’ signature. Also, a bank certifies a cheque by adding the word ‘Certified’ to the signature
Process1. In case of a bank draft, there are banks representatives who act as an intermediary.
2. Bank issues draft on your request but processes it only after verifying that the account has sufficient funds to cover the cheque.
3. At this point, the bank deducts the amount from your bank account.
The process is complete once the recipient deposits or cashes the draft.
1. In the case of certified cheque, there is also an intermediary involved which is the bank employee.
2. The bank employee checks if the issuer has sufficient funds in the account.
3. After it is confirmed the employee processes it. The amount is deducted after the employee certifies it.
Stop PaymentThe possible way to stop payment for a bank draft is when it is lost or destroyed. The bank may provide with a replace issue draft insteadA certified cheque guarantees payment will be made this means it is not possible to stop payment after the certified cheque is issued
SecurityBanks charge a lower fee for bank draft in comparison to certified chequeThe certified cheque is guaranteed and banks charge a higher fee to issue it
ParticularsDate, the amount payable, payees nameDate, name, the amount in words and figures, signature

Conclusion

It is necessary to understand both these instruments provided by the bank. Both the certified cheque and bank draft is provided by the bank and are used widely. Different countries have different names and even though the path is different the end result is the same. These instruments help in settling for goods and services. It is therefore very important to understand these instruments to decide which ones to use in which situation

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