Bank Drafts – What You Need to Know.

What You Need to Know about Bank Drafts

Consider these news stories:

  • A couple struggles to convince TD Canada Trust to replace a $846,000 bank draft, representing their inheritance, after courier lost the original bank draft
  • UPS tracks down a missing $36,000 bank draft weeks after it was mailed
  • A family’s $500,000 inheritance bank draft is seized by US border officials, and the executor of the will blames bank for ‘faulty advice’ to mail bank drafts to the US

After reading these and other articles about bank draft woes, we thought it was time to expose the shortcomings of this payment method and how to avoid becoming the next victim…

What are bank drafts?

Bank drafts are cheques drawn on a bank’s own account.  A person requesting a bank draft transfers the money from his own account to the bank’s account, and in return the bank issues a draft or cheque for that amount.   Payment of the draft is guaranteed by the issuing bank.

In the days before electronic payment, bank drafts were a common method to transfer large sums of money because drafts will always be honored, as long as the bank is still in business.

What’s the problem with using bank drafts?

While less vulnerable than cash, bank drafts have some serious drawbacks:

  • Bank drafts cannot be cancelled or stopped. Unlike a cheque, if a bank draft is lost or stolen, it may be very difficult or impossible to retrieve the lost funds.
  • Bank drafts do not expire, and should be treated with the same care as if they were cash. You should take the same precautions for the safety and security of a $100,000 bank draft as you would if it were a box containing $100,000 in cash.
  • The bank draft is a physical instrument that must be physically transported to the payee, which can be risky, costly and time-consuming.

How should bank drafts be delivered?

If you are going to use a bank draft, always deliver it in person, and never by mail or courier.  In the case of the $846,000 lost draft mentioned above, UPS refunded the $32 it charged to ship the draft and apologized for the inconvenience, but was not liable for the bank draft amount (UPS’ policy prohibits delivery of currency and negotiable instruments).

If I don’t use bank drafts, how do I send large sums of money?

For businesses moving money within Canada, electronic funds transfer (EFT) is an efficient option, whereby money is transferred directly between bank accounts.   If money is to be sent abroad, wire transfers are usually the most efficient method of payment.  If the payor and payee have bank accounts within the same financial institution, funds may be moved between accounts at no charge.

Electronic payment systems have eliminated the need to use bank drafts.  These days money can be moved across the country or around the world with the touch of a button.  Electronic payment methods are a far more efficient, more secure and less costly way to move large sums of money than paper-based instruments such as bank drafts.



Find out more about cash management – call me and we can have a conversation.  We can also talk about improving operating efficiency, reducing costs and strengthening your organization.  Reach me at 613-727-1230 ext. 212 or

Richard MacNeill, FCPA, FCMA, CMC, Dipl. T. is a partner at OTUS Group, a team of advisors to business, government and not-for-profit organizations.

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Richard MacNeill
President, OTUS Group | OTUS Group
Holding Certified Management Accountant (FCMA), Chartered Professional Accountant (FCPA) and Certified Management Consultant (CMC) designations, Richard is also a graduate of the British Columbia Institute of Technology, holding a diploma in Computer Programming and Systems Technology.
Outside of work, Richard enjoys spending time with his wife and three children, and training for obstacle races.

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