Two of the best (and most secure) ways to send or receive money are money orders and bank drafts.
In this piece, we will cover the difference between money order vs bank draft.
We will discuss:
- The key differences between money order vs bank draft
- When to use a money order vs bank draft
- What are the pros and cons of each
- Money order and bank draft alternatives
By the end, you’ll know which one would be the right for you.
Let’s get started!
What are the key differences between a money order and a bank draft
| Money Order | Bank Draft | |
| What is it? | An order for a payment for a pre-specified amount of money. You buy a money order with cash or a debit card. | It’s a bank check that a bank employee accepts after they receive the funds from the issuer. |
| Where can you get it? | You can buy a money order from banks, retail stores, post offices, and money transfer companies. | You can buy it only from a bank or a credit union where the issuer has an account. |
| Who guarantees the payment? | The issuer because it’s prepaid. | The issuer’s bank guarantees the payment.
|
| What’s the maximum amount of funds you can send/receive? | Up to $1,000. | There isn’t a maximum. |
| How secure is it? | It’s very secure because a money order doesn’t have your personal banking information on it.
If someone steals it or you lose it, you can cancel it and get a refund. |
Very secure because a bank backs a bank draft.
But it’s hard to cancel it once you have issued it. |
| What’s the cost? | Under $5, depending on who’s the issuer. | Between $7-$10. |
| How to cash it? | You can cash it at your bank or at retail locations that offer check cashing. | The recipient’s bank. |
Both money orders and bank drafts are secure payment methods.
The main difference is that bank drafts would be better for you if you’re doing a larger transaction through your bank.
Money orders are perfect for smaller payments (under $1,000) without requiring a bank account.
If you’re curious, you can learn the difference between a cashier’s check and a money order.
When to use a money order in Canada
You want to use a money order in Canada if you:
1 Send a payment by mail
You can use a money order to pay your rent, bills, or other transactions because it’s safer than cash.
2 Don’t have a checking account
You can make a payment using cash without needing a bank.
3 Are paying a stranger or an unknown business
If you’re paying someone whom you don’t fully trust, you can use a money order because it doesn’t require your bank details.
4 Send money internationally
Most money orders are limited to specific currencies like USD, so they are a cheap way to send money to someone in another country.
When to use a bank draft in Canada
You’d want to use a bank draft in Canada if you’re:
1 Buying a home or a vehicle
Using a bank draft to guarantee payment is often necessary when making a down payment or paying closing costs on a house purchase
2 Making a large deposit
Your landlord might ask for you to pay your rent using a bank draft.
3 Doing business transactions
If you’re making any kind of expensive purchases such as buying equipment, you might want to use a bank draft to add an extra level of security and trust between parties.
4 Making an international payment
You can get a bank draft in foreign currencies which makes them better for international payments than money orders.
What are the pros and cons of each?
In the discussion between money order vs bank draft, you should keep in mind that each tool has its own pros and cons.
Let’s dive into each.
Pros and Cons of a Money Order
Here are the pros and cons of a money order:
| Pros | Cons |
| Extra secure because you can trace it. | You need to pay a fee when you purchase a money order. |
| You don’t need to have a bank account which makes them accessible to pretty much everyone. | Some money order issuers might require identification or limit the number of money orders you can get in a single transaction. |
| They are very popular methods, so you can use them to pay bills, make purchases, or send money domestically. | You can’t cancel them easily if you need to stop the payment. |
| You can buy them with cash which makes them easy to get. | They have a maximum limit of around $1,000. |
Pros and Cons of a Bank Draft
Here are the pros and cons of a bank draft:
| Pros | Cons |
|
Secure because the issuing bank guarantees the funds. |
Higher fees which makes the overall transaction more expensive. |
|
You can get a bank draft in different foreign currencies which makes them easier to use for international payments. |
Getting a bank draft might be time-consuming because you need to visit a bank branch and wait for an employee to prepare it. |
| No limit on the amount of funds you can send. | Difficult to cancel one once it is issued. |
| You get a clear record of the transaction when using a bank draft. | Hard to recover your funds if you lose or someone steals your bank draft. |
| It’s a popular payment method that makes it easy to use for international payments. | You might need to pay higher exchange rates when doing a foreign currency draft. |
What alternatives are there?
There are a few alternatives to money orders and bank drafts such as:
1 Wire transfers
You can use them to send funds electronically between banks but might have higher fees. They are still a fast and secure alternative though.
2 Certified checks
Similar to bank drafts, the issuing bank guarantees the certified checks. They are still a secure option but instead of using the bank’s funds, certified checks use the sender’s funds.
3 Online payment services
Online platforms like PayPal, Cash App, and Venmo allow you to send funds to individuals or businesses. Some of these offer free transfers but might have lower transaction limits.
4 Digital wallets
Wallets like Apple Pay and Google Pay are convenient methods you can use to buy items online or in a store.
5 A money transfer service like Western Union Canada
Using Western Union Canada, you can send money to Canada and internationally without much hassle. Learn more about using Western Union here.
