Q:

What is a banker's draft, and how does it work?

A:

Quick Answer

A banker's draft is a check that is guaranteed by the bank to clear. To ensure that the check will clear, the bank effectively sets aside the funds in the issuer's account so they are not used for any other payments.

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What is a banker's draft, and how does it work?
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Full Answer

In the United States, a banker's draft is typically referred to as a cashier's check. Banks only issue cashier's checks to customers who have enough cash in their account to cover them or to customers who have cash to pay for the cashier's check.

In exchange for the payment, the bank gives the customer a paper cashier's check, and the bank prints the name of the check recipient and the amount on the check. Cashier's checks look different than regular checks so the recipient knows he is receiving guaranteed funds.

Many banks are willing to offer banker's drafts or cashier's checks to people who are not their customers. These checks can be bought over the counter of a bank for a small fee, but they must be purchased in cash. Because the funds are verified, banks are not willing to accept an unverified payment like a check from another account.

A money order is another type of verified payment. It is similar to a cashier's check. Money orders can be purchased at grocery stores, post offices or money stores.

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