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What is a Bankers Draft?

in this video we're going to explain

what a banker's draft is and I find the

best way to explain this is to compare

it to a cheque so bankers drafts are

really about solving some of the

problems associated with cheques so if

we understand how cheques work you can

see the advantages that bankers drafts

have over cheque so on the Left we've

got a cheque and on the right we've got

a banker's draft and what we have to

understand is exactly what happens when

you cash a cheque and the big problem

that this introduces so the cheque is

written by someone who's got to pay you

for example you then go and deposit the

cheque at your bank and then the bank

asks a really important question which

is is there enough money in the person

who wrote this cheques bank to actually

cash it and if the answer is yes then

you'll receive your money and the money

is transferred from their bank account

to your bank account

the problem is if the answer is no that

that person does not have enough money

to back the cheque then the cheque is

not cash and it's returned to the

original bank uncashed that's called a

cheque bouncing and so you won't get

paid so you could have provided services

or goods without actually getting paid

because that cheque is bounced so

whenever you accept the cheque you're

taking a risk and with large sums of

money that's going to be a big problem

for your business so the way to get

around that is with bankers drafts and

so there's a process for a cheque and

let's compare it to the process for a

banker's draft so with a banker's draft

the bank issues the bankers draft and

that is signed by an official of the

bank so it is backed by the financial

strength of the bank that issues it the

bankers draft is then deposited in the

receiving bank and then the money is

transferred there is no check on whether

the person can afford it or not because

that money has already been removed from

their account and it is backed by the

strength of the bank so you're a

virtually guaranteed to get your money

and so a banker's draft is virtually

eliminated completely any risk of

banking or not receiving payment so to

summarize the advantages of a banker's

draft is that they never bounce and they

are backed by the financial strength of

the bank on the other side for the

person that is went to get the bag

draft to make the payment they are

expensive you usually have to pay quite

substantial fees so usually it ends up

being quite a start large percentage of

the money you could be talking 10 to 20

pounds $20 that sort of region and also

the money is taken out of your account

straightaway so you don't have a few

days to get the money together the money

is gone the second that the bankers

draft is issued the bank holds that

money separate so hopefully by the end

of this video you understand exactly

what a banker's draft is and the

advantages and disadvantages of them so

finally thank you very much for watching