What is a banker's draft?

A banker's draft is a secure form of payment that a bank issues on behalf of a customer, often used for large transactions where additional guarantees are necessary. This type of draft is drawn against the bank's own funds, ensuring the payee that the payment is guaranteed and will not bounce, which is a critical feature for transactions that require a higher level of trust.

When a customer requests a banker's draft, the bank withdraws the necessary funds from the customer's account and issues the draft, making it a reliable method for remittances, especially in situations such as property purchases or business dealings. The customer can then deliver the banker's draft to the payee, who can deposit or cash it with confidence that the funds are guaranteed.

In contrast, a personal cheque relies on the availability of funds in the issuer's account, which can lead to complications if the account lacks sufficient balance, whereas a banker's draft eliminates this risk. This secure nature makes the banker's draft a preferred option for significant financial transactions.