Waht is Bank Draft.?

What Does Bank Draft Mean?



A type of check where the payment is guaranteed to be available by issuing bank. Typically, banks will review the bank draft requester's account to see if sufficient funds are available for the check to clear. Once it has been confirmed that sufficient funds are available, the bank effectively sets aside the funds from the person's account to be given out when the bank draft is used

for example, you might need a bank draft as part of a deposit to hold a house you plan to rent, or you might need cash or a cashier’s check to pay for a car you plan to purchase from a private seller. While some people might prefer to pay with cash, this is not always a good idea. Getting a bank draft at the least provides you with a record of a transaction, whereas cash does not. The draft is usually made out to the individual to whom you are making the payment, and this is also recorded. You can show you withdrew cash from your account, but you may not be able to prove that you then gave it to a third party. It can cost a little money to purchase a cashier’s check, usually a couple of dollars per hundred US Dollars (USD) withdrawn. Many find the security of researchable records is well worth the cost.

Basic Introduction to Credit Card

A credit card generally works by giving its holder an immediate authority to purchase services and goods such as travel and hotel reservations as well as shopping for merchandise in and outside your own country.

All the credit card comes with a credit limit, a predetermined amount of money which its lender is offering as credit to a credit card holder to spend wherever he wants to. Before issuing a credit card to an individual, the bank or the financial institution has a look at his/her credit rating along side verifying his/her credit history.

After receiving the needful information about the applicant, the lender company issues the credit card to him. Now if the credit card holder goes shopping with his credit card, he pays the vendor through the card which is actually reimbursed to the vendor through the bank or the lender company.

And finally, the cardholder then repays the bank for the entire credit amount that he has used, by paying it back through regular monthly payments.

In case the cardholder fails to payback the entire balance, the bank can lawfully charge him/her with an interest fee on the unpaid amount.

This exactly why a thorough credit rating check is done by the lender company for the potential cardholder. Such a measure guarantees them as a lender that an individual with a good credit rating is likely to return back the credited amount.

That is why it is always better to have a good credit rating because the better your credit history, the easier it is for any individual to apply for and receive a credit card.

Many credit card programs these days also include insurance coverage to secure the card holder in cases like theft or fraud. There are very high chances of a credit card being stolen to be later used illegally by the thief, but in case the card is insured and the matter immediately reported to the lender company, the actual credit card holder would not be held accountable for the illicit charges.

However, a credit card holder can him/herself authorize any other person to use his card for purchase of any goods or services willingly. In such cases, it is the primary cardholder who is accountable for paying back all the transactions made through his or her account, eventually.

Every banking and other financial institution has its own company policies and conditions regarding the credit limit as well as the time allowed to pay it back.

While some might give more weightage to an applicant’s credit rating, others might not be so stringent in those matters.

Both secured and unsecured types of credit cards are issued by the various lender companies and it is your choice on which one you want to opt for. Sometimes, it also depends on your credit rating. A very poor credit history might force you to opt for a secured credit card.

Whatever be the case, what needs to be remembered always is that credit card is not our money till the time we do not repay it back. It is a loan that we take from the bank or the lender company. This facility provides us to buy first and pay later, but paying it back later is a must or you may never come to know when you get trapped in the vicious circle of credit card debts.

Introduction to Banks

Introduction to Banking
Learn about the basics of banking, as well as alternatives to banks, such as credit unions, brokerages and mutual funds


Types of Accounts
Find out about the different types of bank accounts that are available, including savings accounts, checking accounts, money market deposit accounts (MMDAs) and certificates of deposit (CDs).


Choosing a Bank
Learn how to choose the best bank for you. Compare features like interest rates, convenience, FDIC membership, size, and minimum deposit. Compare services like direct deposit, ATMs, online banking, credit cards and debit cards.





The bulk of all money transactions today involve the transfer of bank deposits. Depository institutions, which we normally call banks, are at the very center of our monetary system. Thus a basic knowledge of the banking system is essential to an understanding of how money works.

Bank Deposits and Reserves

The monetary base is created by the Fed when it buys securities for its own portfolio. Bank deposits themselves are not base money, rather they are claims on base money. A bank must hold reserves of base money in order to meet its depositors' cash withdrawals and to cover the checks written against their accounts. Reserves comprise a bank's vault cash and what it holds on deposit at the Fed, known as Fed funds. The Fed requires banks to maintain reserves of at least 10% of their demand deposits, averaged over successive 14-day periods.

The Movement of Bank Reserves

When a depositor writes a check against his account, his bank must surrender that amount in reserves to the payee’s bank for the check to clear. Reserves are constantly moving from one bank to another as checks are written and cleared. At the end of the day, some banks will be short of reserves and others long. Banks redistribute reserves among themselves by trading in the Fed funds market. Those long on reserves will normally lend to those short. The annualized interest rate on interbank loans is known as the Fed funds rate, and varies with supply and demand.

The reserve requirement applies only to the bank's demand deposits, not its term or savings deposits. Thus when a bank depositor converts funds in a demand deposit into a term or savings deposit, he frees up the reserves that were held against the demand deposit. The bank can then use those reserves in several ways. For example, it can hold them to back further lending, buy interest-earning Treasury securities, or lend them to other banks in the Fed funds market.

Controlling the Fed Funds Rate

The supply of reserves changes whenever base money enters or leaves the banking system. This occurs when the Fed buys or sells securities or when the public deposits or withdraws cash from banks. The demand for reserves changes whenever total demand deposits change, which occurs when banks increase or decrease aggregate lending. The Fed controls the Fed funds rate by adjusting the supply of reserves to meet the demand at its target interest rate. It does so by adding or draining reserves through its open market operations.

The Fed funds rate effectively sets the upper limit on the cost of reserves to banks, and thus determines the interest rates that banks must charge the public for loans. Bank interest rates influence the demand for loans, and thereby the net amount of bank lending. That in turn determines the liquidity of the private sector, which is important in terms of aggregate demand and inflationary pressures. The selection and control of the Fed funds rate is the key monetary policy instrument of the Fed.

The Effects of Government Spending

The Fed acts as a depository for the Treasury as well as member banks. All government spending is paid out of the Treasury's account at the Fed. Whenever the government spends, the Fed debits the Treasury's account and credits the Fed account of the payee’s bank. The Treasury replenishes its Fed account with transfers from its commercial bank accounts where it deposits the receipts from taxes, and the sale of its securities.

In order to minimize variations in aggregate banking system reserves, the Treasury maintains a nearly constant balance in its Fed account. In effect, Treasury payments are simply transfers from its commercial bank accounts to the bank accounts of the public. Funds move in the reverse direction when the public pays taxes or buys securities from the Treasury. The Treasury must maintain a positive balance in its commercial bank accounts to avoid having to borrow directly from the Fed. However it has no need for, and does not accumulate, balances in excess of its near-term payment obligations.

On average, government spending does not affect the aggregate bank deposits of the private sector. The Treasury sells or redeems securities as required to balance its inflows against outflows. However short-term variations occur because receipts cannot be synchronized with spending. Banking system reserves remain essentially unaffected by government spending because the Treasury transfers funds from its commercial bank accounts to replace the funds spent out of its Fed account.