Treasurer's Draft

A treasurer’s draft is a type of bank draft that is payable through a designated bank. Treasurer's drafts are drawn from the issuer's own account. The designated bank does not verify either the signature or the endorsement of the check. It is the issuing bank's responsibility to verify the signature and endorsement on a treasurer's draft. A treasurer’s draft may also be known as a cashier’s check.

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. Only the payee to whom the draft is payable can cash it.

Most banks make funds from treasurer’s drafts available the next business day after the day of deposit. Although treated as guaranteed funds, a treasurer’s draft, like any check, must be processed and cleared. The payee’s bank must present it to the issuing bank for payment. Fraudulent treasurer’s drafts are common; a customer can deposit a fraudulent draft, and, because of next-day availability, may think that it has cleared when it has not. Ultimately, he or she may be responsible for repaying any funds from a fraudulent treasurer’s check. Because of the risk of fraud, banks may place a hold on treasurer’s drafts in amounts higher than $5,000.

Treasurer’s drafts are typically used to settle large transactions in which a secure method of payment is required. Treasurer’s drafts usually incorporate security features like watermarks, or heat-responsive and color-shifting ink. 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. Since they can only be cashed by the payee, they are also more secure than cash. Corporations often use these drafts to pay freight bills; insurance companies also use them to settle claims. They are also used in real estate transactions and other high-dollar purchases.