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When a business or individual needs to pay a certain amount of money to another business or person, several options are available for transmitting those funds securely. Many businesses accept credit card payments, but there may be times when a negotiable instrument, such as a check, a certified check or a bank draft, are requested. Typically used when substantial funds are changing hands and the payee, or recipient, wants a little more security than a regular check would offer, certified checks and bank drafts are similar instruments used for the transference of funds. Both certified checks and bank drafts involve verification of available funds and are treated as the equivalent of cash.
TL;DR (Too Long; Didn't Read)
While a bank draft and certified check serve similar purposes, a bank guarantees payment of a certified check, while bank drafts are directly transmitted between banks and accounts.
What Is a Certified Check?
A certified check is a variation of a regular check. The difference is that in the case of a certified check, the bank itself guarantees payment: The bank certifies that the depositor’s funds are available to cover the check. The other major difference between a certified and a regular check is that in the case of a certified check, the bank itself has payment liability for the check based on its certification that the funds are available.
A bank certifies a check by adding the word certified to the drawer’s signature on the check, along with a signature from a bank officer or other authorized bank representative.
What Is a Bank Draft?
Bank drafts are similar to cashier’s checks in that they are considered safer than a personal check, at least from the perspective of the person receiving the funds in question. The bank draft, sometimes called a certified bank draft, is drawn on funds that are on deposit with that bank, and payment is guaranteed by that issuing bank.
In order to procure a bank draft, the payor – the person sending funds to someone – must first be a customer of the bank in question. Secondly, and most critically, the customer must have sufficient funds on deposit with the bank to cover the amount of the draft. When the draft is initiated, the bank will essentially freeze that amount, or alternatively move that amount into the bank’s own accounts, until the payment has been completed.
It should be noted that the words bank draft may have other meanings in other situations and countries. Moreover, in some cases, the bank draft is basically an order to shift funds from one account to another. Sometimes these are accounts at the same bank and sometimes the funds are transferred from an account in one bank to an account in a different bank.
Similarities Between Bank Drafts and Certified Checks
Both bank drafts and certified checks function in similar ways. In some cases, the person receiving the funds requires additional reassurance that the payment will be honored. After all, personal checks can, and do, bounce. When the person to receive the funds does not want to rely on an ordinary check or on the credit of the individual who forwards the payment, the payee will typically request either a bank draft or a certified check.
Scams of Bank Drafts and Certified Checks
While one of the major advantages of bank drafts is heightened security, you can’t always assume that the use of a bank draft means the transaction is safe. In fact, certified check scams regularly use fake instruments, such as bank drafts and checks to swindle victims. One major red flag of fraud is where someone sends you payment for more than is owing and asks you to send back the overage. You will have sent a refund for the overage and find out weeks later that the payment was no good. If you receive payment through one of these types of instruments, double check with both your bank and the issuing bank to verify the legitimacy of the document.
- Nerdwallet: What Is a Certified Check?
- Investopedia: Bank Draft
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- LII: UCC Article 3 Section 409 Acceptance of draft; certified check
- UniformLaw.org: UCC Article 3, Negotiable Instruments and Article 4, Bank Deposits (2002) Summary
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Annie Sisk is a freelance writer who lives in upstate New York. She holds a B.A. in Speech from Catawba College and a J.D. from USC. She has written extensively for publications and websites in the business, management and legal fields.