The Basics of a Banker's Draft

A banker's draft is a type of financial document used by a bank and two parties. A banker's draft ensures that the necessary money in a financial transaction is available. Here are the basics of the banker's draft.

Banker's Draft

A banker's draft can be used in an arrangement between an individual and a bank. This type of document is also sometimes referred to as a cashier's check. When an individual wants to get a banker's draft, she will work with her financial institution to initiate the process. The individual will ask the financial institution to transfer a certain amount of money from her account into the bank's account. The bank will verify that the money is transferred and that the individual's account had enough money in it. They will then issue to the individual a check drawn directly on the bank's account. The individual can then take the check to another party who needs the money. The third party can then immediately deposit this check. Once he deposits the check, the money will be deposited fully into his bank account. 

Check Clearing

The big advantage of using a banker's draft is that the party that ultimately receives the check does not have to wait for it to clear. When an individual writes a regular check and gives it to someone else, the party that receives the check will not necessarily have immediate access to the money when he deposits the check. His bank will have to contact the bank of the person who wrote the check. That bank will then have to check the account of the individual in order to make sure that there are enough funds in the account. This process can take a few days to complete. In addition to that, if the party that wrote the check did not have enough money in her account, the check could bounce. In that case, the individual would receive no money.

With a banker's draft, the bank has already verified that there was enough money in the individual's account to make the transaction. They have already taken the money out of the account and put it into their own account. This process eliminates a lot of the guesswork and ensures that the money will be available when it is needed. As soon as the check is deposited, the bank can immediately transfer the money over into the receiver's account. 

Requiring Banker's Draft

Because of the extra safety that is involved, many merchants require banker's drafts when they are accepting payment. This is a standard method of payment when working with large amounts of money on bigger financial transactions. By doing this, the individual that is receiving the money can make sure that he is not being taken advantage of by accepting a check that is no good. 

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