What is a Check?

When checks first came into circulation, most people had barely gotten used to the idea that they could entrust their hard-earned money to complete strangers in the name of ‘banking’ – and so, the singular thought of involving these ‘small pieces’ of paper in transactions, and trusting them as a means of payment was simply mortifying.

It was not until the late sixties, when a group of business men in Boston adopted the use of checks in a publicly transacted business arrangement that it gradually begun to ease slowly into the consciousness of people that checks were there, and they had come to stay.

Lately though, the use of checks appears to have plummeted in the U.S. drastically – but even with the decline in its use, it still ranks among the top 4 preferred systems of business transactions and is used for about 19% of all purchases.

So, what is a Check?

A check is simply a piece of paper or a document that carries the instruction for the payment of a certain amount of money to its bearer – or more simply, a check is a document in which the writer orders his/her bank to pay the bearer or receiver of the check a stated amount of money.

For example, if John writes Jane a check of $5, the check is the document that informs John’s bank of his intention to give Jane $5 of the money available in his account, and in turn, Jane may decide to collect the money, or instruct her bank to accept the money on her behalf and credit her account.

In any case, the check may only be redeemed by the bearer (which in this case is Jane) – unless otherwise stated, and the check can be for any amount.

In the use of checks, the parties involved are; the drawer (the bank, or institution where the money is located), the drawee (the individual who writes the check) and the payee or bearer (to whom the check is written).

How are Checks Gotten?

Checks are considered to be an accompanying document for ownership of a bank account. Thus, when a person opens an bank account, they are entitled to a check book (which is simply a book of blank checks given to an account owner) with which they can make and receive payments, to and from said account.

Usually, the bank with which you open an account may make a check available to you at a small cost, but there are other means by which you can obtain, personalize, print or order checks.

Our article on ‘cheap checks and where to print them‘  gives a thorough account of where and how you can obtain checks.

Read it here (Insert Link)

What are the Different Types of Checks?

There are different types of checks – each of them vary based on their features, functions, the requirements that must be met before they are redeemed, their limitations and the dates before and after which they are considered void or stale (i.e. invalid).

• Personal Checks

A personal check is a kind of check that is directly linked to your checking account.  (a checking account is a type of account that is used mostly for financial transactions and is different from a savings account in that savings accounts generally have a limit to the number of transactions you can make per month while checking accounts provide ease for an unlimited number of transactions)

Personal checks have the name of the recipient and the amount of money the check is worth written on it, and simply represents a promise that when the recipient redeems or cashes it, that the money will be there; and they remain valid until the date on it is exceeded by no more than 3-6 months – however, the time limit varies with different financial institutions, and unless it is stated otherwise on the check, most rebate checks say they are only valid for 30 days.

Also, while there is no legal upper limit on a personal check, nor any bank imposed limit per say, practically usually dictates that larger amounts than $250,000 be transferred electronically – normally, funds above that amount in a checking account are not insured by the FDIC anyway.

Personal checks may be obtained from the bank where your checking account is domiciled; some banks are known to give these for free, while others charge a small fee – however, a few other check printing companies provide services such as the personalization, bulk order and printing for personal checks at a decent price as well.

Read our article on them here ‘cheap checks and where to print them’ (Insert link)

• Bearer Checks

This type of check is also called a ‘bearer draft’.

It is often suggested that all checks are bearer checks where you can just see the words; “pay to………………or bearer”.

However, when the words “bearer” is simply canceled by a line, it is considered an order check, and in this case, the banker has to identify the person redeeming the check, as the person whose name is indicated on the check.

Otherwise, when the word ‘bearer’ has not been canceled, the check is automatically payable to the bearer or the presenter of the check – no identification is necessary; however in normal banking practice, where the amount on the cheque is substantial, the identity of the person may be insisted on.

Thus, the major feature of a bearer check is that it can be negotiated or passed to another person by mere delivery. So the holder (or transferor), need not endorse the check.

A bearer check is valid for no more than 3 months after its written date after which it becomes stale.

These kinds of checks are notorious for being very risky since they can be cashed by anyone at all, even if they are lost and picked up by a random stranger.

• Certified Check

A certified check is a kind of check that represents a banks written acceptance and acknowledgement that the check issued is genuine and that there are sufficient funds in the issuers account to honor the check when it is presented for payment – this kind of check is signed by the issuer and the bank.

The whole purpose of a certified check is to ensure that the recipient of the check is covered for any risks of the checks bouncing and has guarantee that the bank will make the full amount available when the check is cashed.

If the check has been certified by the bank by mistake however, the bank corrects the error by cancelling the error and notifying the payee; i.e. if they haven’t already acted in reliance on the certified check.

Certified checks are typically void or stale after 60 days – after the number of days have elapsed, the bank withdraw s its certification and cover.

Certified checks are typically used in larger financial transactions when paying with cash is impractical for buyers, and accepting payment by a regular personal check can be risky for sellers.

• Cashier’s Check

A cashier’s check is a type of check that represents a draft drawn on the bank itself, wherein the bank agrees to honor the check when it is presented for payment.

It is often confused with the certified check but is different from the certified check in that in the cashier’s check, it is only the bank and not customer that signs the check. This means that the bank is liable to pay the check, while the bank sets aside funds from the customer’s account to reimburse itself when the check is cashed – and in contrast to the certified check, you could seek remedies immediately and directly against the bank is there is a problem with the payment of the cashier’s check.

Cashier’s checks are considered official checks – and thus, their validity is determined by the length of time stated on the check and affected by the States Abandoned Property Laws – i.e. the state where the check is issued from; and thus the check is only valid for the time period based on the particular state, and unless otherwise specified on the check (which may span several years after issuing), the check may be escheated to the state.

They are also called ‘treasurers’ or ‘managers’ checks and are a much less common way of payment, but are significantly safe.

• Bankers Draft (Bank Draft)

A banker’s draft (also called a bank or teller’s check) is a check that is provided to a customer of a bank for the purpose of remittance; that is drawn from a bank and drawn by the bank or made payable through/at a bank.

That is, while a normal check represents an instruction to transfer a sum of money from the issuers account to a payees account, a bank draft is a guarantee of the availability of the underlying funds because it is drawn upon or issued by the bank – they are not very common in the United States as they bear many similarities to a Cashier’s Check, and those are used instead.

Obtaining bank drafts requires depositing funds equal to the check amount and the applicable fees with the issuing bank – the bank creates a check to the payee, drawn on the banks own account.

They are valid for no more than 3 months after the issuing date.

• Travelers Check

A Travelers check is an easy alternative to hard currency. While it is not necessarily money, it is considered so as it is a piece of paper/ document that is bought from a bank or a travel company and that can be used as money or exchanged for money in various countries.

They are considered prepaid forms of payment, and are an easy replacement for the general norm of carrying large sums of money, but were much popular before the advent of ATMs and ATM cards.

Traveler’s checks can be obtained in various currencies and denominations and are accepted as a means of payment in most establishments that are frequented by tourists and traveling business people; they can also be insured against loss, theft or damage, thus providing security to the owner.

While some sellers of travelers checks suggest that it is permanently valid; the idea remains to be seen, as their validity can also be influenced by the policies within the institution that is expected to redeem it.

How to Make Out a Check                  

Writing a check is a both basic and necessary skill for anyone; it is important however to treat the process critically especially since errors and irregularities may lead to the check being flagged as potentially fraudulent.

In no particular order, a check should contain the following details;

• Current date/ Date to redeem the check

The date written on the check should either be the date when the check is written or the date when the check is meant to be redeemed (postdated check) – other dates may be considered suggestive of fraudulent activity and render the check void.

• Bearers name

The check must either carry the payee’s name, or a third party indicated by the payee to whom the amount stated would be disbursed following a verification of the identity of the bank – usually aided by the identification documents presented by the individual.

• Amount (in numeric form and in words)

The amount of the payment should be written both in numeric form and in words to avoid alterations/ fraud. It is also suggested that the amount be written in all capital letters, which are harder to alter.

• Signature

The signature of the writer/account holder must be legible, without this the check will not be considered valid.

• Note/Memo (optional)

Additional notes may be necessary, depending on the purpose of the check or the amount stated – larger amounts may be cause for concern for the account manager.

How to Cash a Check in the US

There are a multitude of ways by which a check can be cashed, depending on the check type or the convenience of the bearer. They include –

• The bank; from which the check was issued
• A retailer
• A prepaid card
• A check-cashing service

A few other factors to consider when cashing a check may include, the cost of the service (as most check-cashing services, including banks, charge a small fee per withdrawal), and the length of time it might take to process the check and redeem the stated amount.