Home Checks

Checks

Facts About Honoring Checks and Misc Information

Facts About Honoring Checks and Misc Information

When a drawee honors a check, it essentially means that that party is accepting the check as valid or is paying it as valid. It means that the drawee is offering to the holder, the payee, the appropriate sum of money for the check. Though a check, as a negotiable instrument, may pass through many hands before finally being presented for payment, when it is presented for payment, it is then up to the drawee to honor that check. If the check is not honored, then the check does not function at its most basic level. There are some reasons for why a check would not be honored, however, that are quite valid and important.

Background
Honoring checks is critical for checks to function as valid and useful negotiable instruments, but there are a few basic reasons for why a check might not be honored. Most obviously is if a check is fraudulent in some fashion. Fraudulent checks should not be honored, as that will likely cause more problems than it solves. Fraudulent checks are difficult to detect most of the time, however. Unless there are clear material alterations made to the check or the check clearly has a forged signature, then the drawee generally cannot employ this reasoning in order to avoid honoring the check.
Another reason why the check might not be honored is that there are not enough funds in the drawer’s checking account from which the check is being paid. In such a case, a drawee, like the bank holding the account in question might deny payment on the check because there isn’t enough money to pay it. This is an instance in which the drawee cannot be held accountable for not honoring the check, as the decision to not honor the check was a result of the drawer’s lack of funds, not the drawee’s actions.
In some instances, however, a drawee might not honor a check because that drawee is participating in some kind of fraudulent action surrounding the check. This is somewhat unlikely, as the drawee of a check is most likely a bank and it is unlikely that any bank which has survived for any length of time would be perpetrating such a fraud.
Nevertheless, it is still theoretically possible and anyone who encounters a situation of a check not being honored should investigate more thoroughly in order to discover why. For more information about the basic issues of honoring checks and some of the reasons why a check might not be honored, follow the link.

Overdrafts
Overdraft fees are fees that some banks may make a drawer pay when his or her account does not have sufficient funds to support payment on a check he or she has drawn. Instead of simply denying payment on the check, as some banks would have done in the past, many banks nowadays instead use overdraft fees to penalize the drawer.
This would mean that the payee still receives full payment on the check, thereby ensuring that the payee has no complaints of the drawee refusing to honor the check. But the drawer might have a full $30 to $40 added to the charge to his or her account for having overdrawn the checking account.
A lot of this money would be out and out profit for the bank, which is why the practice of employing overdraft fees is so appealing to banks. There are some ways to prevent falling victim to overdraft practices in America, many of which include altering or specifying the agreement that the drawer has with the bank. The drawer might, for instance, obtain some form of a line of credit for his or her account such that if he or she overdraws, then instead of being charged an overdraft fee, he or she has a bit of leeway.
A drawer might also choose to link a given account with another account, such that if he or she overdraws the first account, funds can be drawn from the second account instead. But without any of these protective practices in place, a drawer might find him or herself subjected to overdraft fees.
As the causes for overdrawing an account might actually not even be the fault of the drawer, overdraft fees are a somewhat dubious practice. For example, if a drawer has his or her account overdrawn by a misstated charge or bill (like a typo charging $500 instead of $50), then the drawer might find his or her account overdrawn and might suffer overdraft fees without having engaged in any wrongdoing.
The drawer might be able to receive restitution from the erring party, but many would argue that removing the overdraft fees to begin with is the better solution. To learn more about overdraft fees, how they function, and their pros and cons, click the link.


Postdated Checks
Postdated checks are checks which have been dated such that they should not be drawable until the specific date mentioned on the check. This is likely because the account from which the check is drawn might not have enough funds in it to support the postdated checks at the time at which they are written. In order to ensure that they can be successfully drawn without any risk of insufficient funds, the payee should hold off on drawing them until the date written on the postdated checks.
Postdated checks are not illegal under American law and are a viable form of negotiable instrument, but there are some problems associated with them, which anyone should be aware of before he or she accepts postdated checks. For example, a postdated check might be used for some form of fraudulent practice, as the check’s drawer might receive whatever goods he buys with the check only to cancel the postdated check before the date comes and it can be drawn by the payee. As such, postdated checks should be taken only warily from drawers whom the payee trusts.
A postdated check might still be accepted by a bank, even if the date written on the check has not come yet, as a postdated check is still a negotiable instrument which a given holder can negotiate to another holder at will. Postdated checks can even likely be drawn earlier than the drawer wanted, but in such cases, it is likely that the checking account from which the checks are drawn might not have sufficient funds to support their payment. To find out more about postdated checks and the practices surrounding their use, follow the link.

All Travelers Should Use Traveler’s Checks

All Travelers Should Use Traveler's Checks

A traveler’s check is essentially a specialized form of check designed to provide travelers a safer form of money. Traveler’s checks follow the same basic rules of checks in that they are drafts. But there are several unique elements of traveler’s checks designed to make them better suited for usage during travel.
The primary role of a traveler’s check is to serve as a different kind of currency, as each traveler’s check is made out for a fixed amount, even prior to the purchase of those checks. When a purchaser obtains traveler’s checks, he or she is spending his or her own money in exchange for a set of traveler’s checks of equal value so that he or she may use those traveler’s checks as unconditional payments to another party no matter where the traveler may go.
The main advantage of a traveler’s check is that if it is lost, the issuer of that traveler’s check will likely issue a replacement check, assuming that the traveler can show evidence of purchase of the traveler’s check. This means that traveler’s checks have a fair degree of safety to them for the traveler, as even if they are stolen the traveler will be able to obtain a replacement.
For this reason, traveler’s checks are often considered more useful than cash for travelers, as cash, when stolen or lost, will not be replaced. Furthermore, traveler’s checks can be obtained in any of a number of different currencies, increasing their overall utility.
A traveler’s check differs from common checks in some ways, as the terms of a standard check are modified with reference to traveler’s checks. A traveler’s check, for instance, is technically a draft, but it might also be examined as a form of promissory note. When viewed as such, the traveler would be loaning money to the issuer of those traveler’s checks in exchange for the right to call in that debt at any time by cashing the traveler’s check.
In that light, when a traveler uses a traveler’s check for a payment, then he or she is only transferring the right to call in the debt of the traveler’s check. This is not the official form of how a traveler’s check functions, although it is a useful way to understand the differences between traveler’s checks and regular checks.
For a traveler’s check, the three primary terms of a draft are redefined somewhat. Normally, in a draft, there are three parties involved: the drawer (issuer or maker), the drawee, and the payee. But in a traveler’s check, there are four parties involved.
The payee remains the same as the party to whom the traveler’s check is made payable in exchange for goods or services. The issuer of the traveler’s check is the organization that makes the traveler’s check in the first place; this is often a major company such as American Express. This company is the one from whom money is being drawn to support the check in all instances and is the party responsible for replacing the check.
The agent, on the other hand, is the party that actually sells the traveler’s checks directly to purchasers. The agent might be a bank or other store which had previously obtained the traveler’s checks from the issuer. The purchaser, then, is the party that buys a traveler’s check for the sake of using it later in payment to a payee or for deposit. 
Traveler’s checks have certain security risks associated with them, especially because they are effectively a form of cash. As a result, in some cases the payee may ask for ID of some sort to ensure that the traveler’s check in question is actually connected to the person attempting to make payment with it.
The payee may then check the signature on that ID against the signature which the purchaser should have put on the traveler’s check. Payees may also seek confirmation with the traveler’s checks’ issuers in order to ensure that they are valid. This will help avoid the acceptance of stolen traveler’s checks.

How To Handle Check Fraud if it Happens to You?

How To Handle Check Fraud if it Happens to You?

Identity theft or check fraud is one of the fastest-growing types of financial crimes. When an individual steals your banking information and uses it to purchase goods or embezzle money, an individual must follow certain steps to seek justice and obtain reimbursement.
Once this shameful act occurs, you should immediately contact your bank or the institution that issues your credit card, to inform them of a breach and possible fraud. They will effectively freeze your account and place a flag on it to monitor any  attempts of fraud. Freezing your account will also impede the criminal from using additional funds. If check fraud occurs, and the individual obtains your banking information, it is also suggested that the account be closed to prevent repeated violations. 
Once the account is closed or frozen, contact your local law enforcement agency. Give them as much information as possible and get a copy of the police report to send to your bank or credit card company for further investigation. In most cases, you will be required to file an affidavit with your bank or creditor to initiate a formal investigation. 

What to Do With Lost, Destroyed, or Stolen Checks

What to Do With Lost, Destroyed, or Stolen Checks

Though any user of checks should take measures to avoid any such circumstance, it is entirely likely that at some point a check user will lose a check or may even have a check stolen from him or her. To deal with such a lost or stolen check, the first step is to get in contact with the issuing institution and inform it of the situation. Letting your bank know to put a stop on the check is important, especially when dealing with stolen checks.
For a lost check, it is still a good idea to put a stop on the check, especially if the check was lost in a public place. However, if there’s some chance that a trusted party might find the lost check, then it makes sense to hold off on putting a stop on the check for at least some time.
Putting a stop on a check will come with a price, generally between $18 and $32, and this may not be worth it if there is a chance that the lost check will be found along with a lack of risk that the lost check will be stolen.
For a stolen check, however, putting a stop on the check is essential, regardless of the state the check may have been in when it was stolen. Even if stolen checks have not been endorsed or signed, putting a stop to them quickly will ensure that there is even less chance they will function should the thief attempt to forge the signature and submit the stolen check for fraudulent payment. There might still be some problems arising from the stolen check, but putting a stop to the check’s payment quickly will help to at least minimize the risk.
For a lost check of a specific form, procedures might be slightly different, however. A lost traveler’s check, for instance, might be repaid if the purchaser of the check has the proper information. In such an instance, the purchaser of the traveler’s checks should quickly call the issuer of the lost or stolen checks and be ready to provide information including the serial numbers of those checks and the date, location, and details of the theft. With the help of an agent from the issuer’s company, it is entirely likely that the purchaser will be able to quickly receive replacement checks.
For a lost cashier’s check or certified check, the procedure is yet again slightly different. A lost check of this nature should be reported quickly to the issuing institution as well and a stop should be put on the lost check, if at all possible. But lost or stolen checks of this type are often difficult to obtain repayment as, for the most part, the only way to receive such repayment is from section 3-312 of the Uniform Commercial Code, which not all states have adopted.
Even in the case that such Code applies, the law would require banks to repay lost or stolen cashier’s or certified checks only 90 days after the check was issued and only if the bank has not paid on the check already. If the law has not been adopted, then the bank may not be under any kind of obligation to pay back the lost check. The result of this is that it is often quite difficult to receive repayment for lost or stolen certified or cashier’s checks, though this does not mean that one should not attempt to do so, at least by getting in contact with the issuing institution.
If a check is destroyed unintentionally, then many of the same above procedures will apply, as a destroyed check is equivalent to a lost check a great deal of the time. If the check is destroyed intentionally, however, then that will likely discharge all obligation surrounding that check and the destroying party will be unlikely to obtain any kind of payment on that check.

Watch Out for those Overdraft Fees!

Watch Out for those Overdraft Fees!

A bank overdraft fee is incurred by a bank customer when that customer writes a check on his or her account while that account does not have the necessary funds to support the check.
This would actually only occur when payment on the check is drawn, which means that it is possible for a customer to avoid an overdraft fee if he or she knows that he or she will be making a payment into his or her account prior to the recipient of the check attempting to deposit or cash that check. However, some banks actually use practices such that they will process payments before they process deposits so as to maximize bank overdraft fees and make the most profit.
Bank overdraft fees are a highly debated practice for reasons such as this. An overdraft fee can be examined as a penalty for overdrawing an account and for having the bank cover a payment which otherwise would not have been covered.
An overdraft fee can also be viewed from the perspective of the customer, however, who might not want to pay an overdraft fee. The customer might instead prefer to simply have the check bounce, instead of having to pay extra on it. As such, the customer might see overdraft fees as unfair charges to his or her account.
Nowadays, there are a large number of possible sources for bank overdraft fees, ranging from ATM overdrafts, when an individual attempts to receive cash from an ATM and overdraws his or her account in the process.
An overdraft fee may also apply to authorization holds, in which a customer’s purchase with a merchant may not be treated as a standard debit purchase, possibly resulting in the funds being set aside in the customer’s account for payment at a later date. The customer, in such a case, might think that he or she is safe from an overdraft fee, as the payment would be set aside, but the bank does not hold such payment indefinitely.
Thus, if the merchant does not draw payment in a short amount of time, the set-aside payment might go back into the account proper and the account holder might overspend and wind up without enough money left in his or her account to pay when the merchant does finally draw the debt, thus resulting in an overdraft fee for the individual.   
In America, there are some systems available to help protect oneself from bank overdraft fees. Overdraft fee protection services can help protect a customer from any kind of overdraft fee made when paying for certain items or when obtaining funds in certain ways.
There are different types of overdraft fee protection services, some of which may simply provide a line of credit attached to an account, thereby allowing the consumer to make purchases past their account value to a certain limit without incurring bank overdraft fees. Others may involve connecting an account to another account such that when one account is overdrawn, instead of incurring bank overdraft fees the remaining extra amount is drawn from the linked account.
In general, however, because an overdraft fee may be far too appealing of a tool for a bank to obtain profit, there are many elements of proposed legislation and regulation which might limit the use of these bank overdraft fees.  

Using A Certified Check

Using A Certified Check

A certified check is a specialized type of check designed to be safe from any danger of being denied when submitted for payment due to insufficient funds in the account to which the check is attached. Certified checks are used in order to ensure the payee of the validity of payment and to allay any suspicions that the check will bounce. As such, certified checks are most often used for larger or more important payments, such as payments for a car, or security deposits on living spaces.
Certified checks are normal checks which have been stamped by the certifying institution, ensuring that the check will not bounce. Banks will certify checks by first establishing that the account from which the check is drawn actually has the requisite funds within it at the time of the check’s issuance.
After performing such a verification, a bank will then certify the check and put a hold on the appropriate amount of funds within the account so that those funds cannot be drawn by any negotiable instrument other than the certified check. This will ensure that when the check is cashed, a sufficient amount of funds will be available in the checking account. Thus, a certified check ensures the payee that he, she, or it will not encounter difficulty from a denied payment.
A certified check bears many similarities to a cashier’s check, in that both are guaranteed by the issuing bank and both are used for transactions in which the guarantee of the check is significant, either because the payee does not trust the credit of the drawer or because the payment is simply too large to be left without some form of guarantee.
The difference between a cashier’s check and a certified check is that a certified check is still drawn from the account of the drawer, whereas a cashier’s check is drawn on the bank itself. Because a cashier’s check involves paying the bank at the time of purchase, a cashier’s check can be obtained purely through cash. A certified check, on the other hand, requires the bank to put a hold on the appropriate sum of money within a given party’s account. In other words, a cashier’s check will be payable from the bank because the obtaining party will have paid the bank the appropriate amount in a previous transaction, whereas certified checks are payable from an account and are only ensured by the bank. The bank itself will not be making any payments with regard to a certified check.
If a certified check is lost or stolen, the check’s drawer should treat it as he or she would if any check had been lost or stolen. The drawer should immediately get in contact with the connected bank and put a stop on the payment for the check. Certified checks are not quite as immediately liquid as traveler’s checks or cashier’s checks, and as such, are not quite as dangerous because certified checks still require the signature of the payable party, as do normal checks. Nonetheless, sometimes a certified check can be used in the same fashion as cash, and as such, stopping a stolen or lost certified check is critical in preventing any loss of funds.

The Full Guide to Using Checks

The Full Guide to Using Checks

Checks are a versatile form of negotiable instrument.
While they are defined under the Uniform Commercial Code such that all checks
are somewhat similar and can be treated equally, there are many specialized
forms of check that are designed to fulfill different functions,so as to
facilitate transactions for which a normal check might not be adequate.
Understanding the role of each of these specialized checks is important, as one
might need to use such a specialized check should one find on
eself in the appropriate situation.

Background

Checks have been used for payments for a long time, as
checks were actually one of the first forms of negotiable instrument
s. Today checks have a more specific, functional form, as defined by the Uniform
Commercial Code, but even this form is not necessarily perfect for all the many
necessities that have arisen over time.

In particular, checks do not provide as much of an
assurance of payment as some recipients and payees might desire, as checks can
still be denied regardless of the mere fact of their issuance. Additionally,
checks are often an unwieldy or problematic form of payment compared to simpler
methods. Hence, specialized checks such as cashier’s checks, traveler’s checks,
and certified checks arose to fill in the
gaps. Find out more about the basic functioning of these specialized checks by
clicking the link.

Cashier’s Check

When one needs a check which is fully validated by
another party, then a cashier’s check may be the route to go. A cashier’s
check, unlike most other checks, does not involve the party initially obtaining
and holding the check directly in and of itself. Instead, the purchaser of a
cashier’s check pays a bank a certain amount of money for the cashier’s check.
The bank then makes out the cashier’s check for the purchaser. Thus, the
cashier’s check itself does not involve the money of the purchaser, as the
purchaser instead made a payment to the bank. The cashier’s check only involves
the bank’s own funds and any payment on the cashier’s check will come directly
from the bank, as opposed to from an individual’s account.

A cashier’s check is often somewhat more dangerous to
hold than a regular check because a cashier’s check is much closer to cash than
a regular check, as the cashier’s check is usually cleared instantly by a bank.
This makes cashier’s checks ripe for some forms of fraud and it makes them
highly desirable for stealing. But in the event that the purchaser needs guaranteed
funds, a cashier’s check will very likely be better than any other available
option, and indeed
, may be the only available option. For more information on cashier’s checks
and how they function as sources of guaranteed funds, follow the link.

Traveler’s Check

Traveler’s checks are checks suited particularly for
travelers. These are checks which are guaranteed, such that the holder can use
them in foreign countries with little difficulty and if the traveler loses them
or the traveler’s checks are stolen from him or her, he or she will be able to
get replacements from the issuer. This kind of guarantee is very desirable for
any check user, in general, and for the traveler especially, considering that
it would be more difficult to obtain replacement funds from one’s own account
when one is abroad than it would be to do so at home.

Traveler’s checks are also somewhat different from other
checks in that they come in pre-set values, generally in printed packs, which
the purchaser must buy as a group from a given agent or seller. These packs of
traveler’s checks are issued from a different party than
the entity selling them, but this is irrelevant from the purchaser’s perspective,
beyond the fact that the purchaser, when seeking replacements, should seek them
from the issuer first, as opposed to the agent.

Traveler’s checks are also sometimes used for scams or
fraud because of their unique traits. For example, a fraudster might attempt to
report a traveler’s check as stolen so as to be issued a replacement while
selling the original to a different party for some profit. Regardless, the
point of traveler’s checks as guaranteed funds
and safe to use for the traveler is very well served by the traits of the
check. To find out more about traveler’s checks and their unique properties,
click the link.

Certified Checks

A certified check is very similar, in principle, to a
cashier’s check. Instead of paying the bank and then receiving a check that
will draw upon the bank’s own accounts, however, the point of a certified check
is instead to draw upon the account of the check’s drawer, while still
providing the same level of assurance to a payee that is provided by a
cashier’s check.

When a drawer wants to certify a
check, he or she must present the check to his or her bank, which will then
check to make sure that the drawer ha
s enough funds in
his or her account to pay for the check. Then the bank will put a hold on those
funds and will certify the check. This means that when the certified check is
cashed, there will definitively be enough money in the account to pay off the
check
. Thus, any payee or recipient of a certified check is assured that the check
will be paid and will not bounce. The drawer of the check may encounter some
difficulty based on the fact that the money for the check will be frozen and
inaccessible, though it may still be reported on statements until it is drawn
from the account officially, but this is negligible next to the assurance that
there will be no problems from a bounced check.

Most of the time, certified checks are used in situations
where either the payee does not trust the drawer’s credit or where the
transaction is for a high value or is of great import
ance, and thus, the payee wants some kind of assurance of payment. Follow the link for
more information on certified checks and their advantages and disadvantages.

Lost, Destroyed, Stolen Checks

Lost, destroyed, or stolen checks are a problem for any
user of checks, and knowing how to deal with such a situation when it crops up
is important. In general, any time a check has been stolen, the correct
strategy is to get in contact with the bank associated with the check and have
that bank put a stop order on the check. That way, hopefully, no payment will
be made on the check. Such a stop would likely prevent any misuse of the stolen
check and would also help to prevent any fraudulent submission of the check
with a forged signature, for instance.

A lost check might not require such a stop, depending on
the situation, but it likely would simply so that a new check could be issued
as a replacement for a lost check that will never be found. Similarly, an
unintentionally destroyed check would require such a stop so as to end any
effects of that check’s existence.

But some of the specialized forms of checks might require different procedures and might actually lead to better
outcomes if they were lost or stolen. For example, a traveler’s check is
specialized because it comes with a guarantee of replacement, assuming the
original purchaser retains certain information. A certified check, on the other
hand, would require a number of different actions to be taken in order to be
replaced in any significant fashion. For more information on lost, destroyed, or
stolen checks and how to deal with each type, click the link.

Honoring Checks and Misc. Information

Checks do not function if they are not honored by their
drawees. To honor a check is to accept that check for payment. If drawees do
not honor the checks presented to them for payment, then a check is worthless.
Understanding, then, the system by which checks are honored and the reasons for
which a check might not be honored is critical to understanding the system of
checks. Furthermore, there are several elements attached to honoring checks
which are important to understand in order to understand the full checking
system.

Overdraft fees, for example, are fees which are charged
on an account which does not have the necessary money to support payment for a
check. Instead of simply denying payment for the check as having insufficient
funds in the account, banks will often honor those checks and will charge the
drawer the additional overdraft fee. This type of practice is important to be
aware of, as some may have thought that overdrawing an account would result
only in a bounced check and not in additional fees.

One can use practices such as postdating checks in order
to avoid any trouble with overdraft fees, although this is not entirely
foolproof. Postdating a check would theoretically mean that the check in
question, while it might still be honored by a bank, could not be drawn from
the drawer’s account until the date mentioned on the check. By postdating a
check, a drawer might give himself more time to deposit money into his account to
ensure that the account will not be overdrawn. These and more elements are all
important components of the overall system of honoring checks. To learn more
about these practices, and about honoring checks in general, follow the link.

Ensure That Your Checks Are Honored!

Ensure That Your Checks Are Honored!

A check is only good insofar as it is honored by the
drawee. If the drawee does not honor checks drawn from it, then it would not
matter if the drawer or the payee have both otherwise performed their roles in
the transaction. Fortunately, with a check, the banks that play the role of
drawees will generally honor checks drawn on them, as to do otherwise would be
a breach of trust with the customers and would violate the banks’ primary
duties in acting as the customers’ agents. There are some instances, however,
in which a check might not be honored due to circumstances surrounding the
check and the status of the account from which it is being drawn.

In general, if a drawee or a bank does not honor checks drawn
by a particular drawer, then there is a reason for it,
for example, the drawer not having enough money in his or her account to support any check.
This is an instance in which the drawer is said to have non-sufficient funds,
which would then allow the drawee to not honor checks drawn by that drawer.

Beyond simply not honoring a check drawn for funds which
are not in the account, the drawee or bank might institute other penalties,
including some kind of penalty fee. The payee, as well, will likely learn not
to trust a check written by that drawer.

More and more nowadays banks and drawees have begun to
honor checks which draw on accounts with insufficient funds simply in order to
charge overdraft fees. Overdraft fees allow for banks to make a fair amount of
profit on an unsupported check, as they charge the drawer a significant penalty
for having overdrawn his or her account.

Sometimes, a drawee will not honor checks because they
were made with faulty or incorrect information. This is not a terribly common
circumstance, as many incorrect elements on a check are the results of mistakes
as opposed to wrongdoing and can simply be corrected by the proper party or
might not even matter.

For instance, an incorrect date on a check might not
actually matter as to whether or not the bank honors that check. Additionally,
a misspelled name would likely not actually affect the check’s payability; in
such an instance, the payee could simply correct the name and sign with the
correct spelling or could even sign with the incorrect spelling.

But the drawee might not honor checks that are, for
instance,
clearly
altered in some significant or fraudulent fashion, or the
drawee might not honor checks with a clearly forged signature. These instances
are relatively rare and are particularly serious.

In other instances, however, a drawee might not honor
checks because that drawee is, in itself, party to a scam of some kind. If the
drawee is a fraudulent party, then the fact that it does not honor checks might
be an important clue for the drawer or the payee in discovering such fraud and
should be investigated at the earliest opportunity. It is possible that the
drawee had a perfectly reasonable explanation for why it refused to honor the
checks in question, but in the event that it does not have such an explanation,
discovering so earlier is vitally important.

Checks

Checks

Checks are a certain type of negotiable instrument with certain elements already determined under law. A check is always a draft involving three parties: the drawer, the drawee, and the payee. As a draft, a check is an order by the drawer for the drawee to pay the payee an amount of money equal to the value of the check. The general definition of checks sets a bank as the defined party for the drawee.
Checks serve a common role in everyday transactions, as they are a relatively efficient and simple way to transfer funds. But as different needs have arisen, specialized forms of check have arisen in turn to fill those needs. These specialized checks often bear certain characteristics which further define how they function and which may actually take them away from the standard set of characteristics for checks.
For example, many of these specialized forms of check are designed in such a way that they are effectively as valuable and easy to use as cash, which is not true of checks in general. This is because a standard check requires signatures from both the drawer and the original payable party, the payee, for the check to be cashable. Without either of these signatures, the check would not be usable for payment. But on a cashier’s check, for instance, this may not be true, as cashier’s checks follow different rules than regular checks.
Many of these specialized checks arose out of a need for a guarantee of transferred funds. While a check, as a negotiable instrument, is a contract for payment, the problem of many checks is that the check might be issued, endorsed, and cashed before the full set of transactions could be processed, and it could be discovered that there were not enough funds in the checking account to support the payment on the check.
Sometimes this was used for fraudulent purposes, but often enough today checks will simply bounce if there isn’t enough money in the checking account to support payment (though, this has been changing, as overdraft fees have become a more and more desirable practices on the part of banks).
There is no way for a standard check to be verified, such that the recipient has an assurance of payment on the check. As a result, specialized checks were created to provide just such an assurance. Cashier’s checks, traveler’s checks, and certified checks all fill this role, though each has a slightly different way of doing so. Cashier’s checks, for instance, are funded through the bank itself, therefore providing an assurance of payment, while certified checks are still paid through the drawer’s account only.
Also, these checks are slightly different from standard checks in terms of how they are treated when they are lost, stolen, or destroyed. Some forms of specialized checks are insured for the holder of that check, such that if it is ever stolen or lost, then the holder would actually be able to obtain a replacement for that check, and thus, lose nothing except perhaps a transaction fee.
There are three main types of checks, as defined by the Uniform Commercial Code. The first is order checks, which are the basic form of checks with which most citizens of the United States are familiar. In an order check, the drawer orders that a certain amount of money be made payable specifically to a single payee, or endorsee.
The second type of check of significance is a bearer check. Bearer checks are not payable to one specific individual, as order checks are. Instead, bearer checks are payable to the bearer of the check itself, regardless of who that individual may be. These checks are, of course, somewhat riskier than order checks, as they can be used illegitimately or in unintended ways if they are physically lost by the holder.
Counter checks make up the third primary type, as checks issued from banks. They are checks in which the drawer and the drawee are both technically the bank, and they can be used to make withdrawals from the bank for those individuals who run out of their own checks.
Checks have, of late, seen less and less use, primarily because new and more efficient forms of payment have come to prominence. Debit cards and checking cards often fulfill much the same purpose as checks without requiring the actual paper documents which are actually costly for banks to produce.
Checks are also often considered much more time consuming than these newer methods of payment. In general, while it is unlikely that the check will be phased out entirely, it is very likely that checks will continue to decline in use as other methods of payment become more useful.