What Is a Treasurer's Draft?

A treasurer's draft is a type of check that is issued and guaranteed by a bank. The bank or credit union will review the treasurer's draft requester's account to determine if sufficient funds are available for the check to clear. If that criteria is met, the institution will then effectively set aside the funds from the person's account and then pay them out as soon as the draft is used.

A treasurer's draft may also be referred to as a cashier's check.

Key Takeaways

  • A treasurer's draft is a type of check that is issued and guaranteed by a bank.
  • When an account holder purchases a treasurer's draft, the bank immediately withdraws the money from the account holder's account and transfers it into the bank's own account.
  • That means that the bank itself, rather than the customer, backs up the validity of the treasurer's draft.
  • Treasurer's drafts are popular because they generally ensure quick, guaranteed payments, although they aren't immune to fraud.

Understanding a Treasurer's Draft

A treasurer's draft is considered a guaranteed means of payment because the issuing bank, rather than the account holder, takes responsibility for its payment. When an account holder purchases a treasurer's draft, the bank immediately withdraws the money from the account holder's account and transfers it into the bank's own account. In this manner, the bank itself, rather than the customer, backs up the validity of the treasurer's draft.

A treasurer's draft is not endorsed by the customer who requests it. Instead, an employee of the issuing bank endorses the treasurer's draft before handing it over to the customer to be presented to a third party for payment.

The resulting document will feature the name of the recipient and the amount. That means that only the payee to whom the draft is payable can cash it.

Treasurer's drafts are typically used to settle large transactions and payments between businesses and people that do not know each other. For example, corporations often rely on treasurer's drafts to pay freight bills and insurance companies may use them to settle claims. Treasurer's drafts are also used in real estate transactions and other high-dollar purchases.

Benefits of a Treasurer's Draft

Guaranteed Funds

Treasurer's drafts are a more secure method of payment than personal checks because the bank itself guarantees the draft rather than an individual customer. The recipient, therefore, does not need to worry about the payer not having enough funds in his or her checking account and the check potentially bouncing.

Secure

Only the payee whose name is written on the draft can cash it. As a result, treasurer’s drafts are more secure than cash. 

Quick Availability

Once the treasurer's draft is deposited, the funds can be accessed fairly quickly. Most banks make funds from treasurer's drafts available the next business day after the deposit. Personal checks, on the other hand, tend to take longer to clear.

Limitations of a Treasurer's Draft

Treasurer's drafts sometimes fall victim to fraud. A customer can deposit a fraudulent draft, and, because of next-day availability, may think that it has cleared when it has not.

Ultimately, they may be responsible for repaying any funds from a fraudulent treasurer's check. Because of the risk of fraud, banks might place a hold on treasurer's drafts valued at more than $5,000.

Treasurer's drafts usually incorporate security features like watermarks or heat-responsive and color-shifting ink.

Special Considerations

Once a bank draft, such as a treasurer's draft, is arranged, it is usually not possible to cancel or stop payment on it since it, in effect, represents a transaction that has already occurred. That said, if the draft has been lost, stolen, or destroyed, it can usually be canceled or replaced provided that the purchaser has the required documentation.