(From the Financial Literacy Blog) – At one point in time, checks accounted for 86% of all non-cash payments. However, there has been a steady decline in check usage since the mid-1990s, with American consumers preferring to use credit or debit cards as a cash alternative. In recent years, payment apps and digital wallets have further contributed to the decline of written checks. There are still circumstances where you’ll either receive or need to write a check, so it’s important to understand how to fill one out. It’s also important to recognize the different types of checks that are available to consumers. Here are some that you should be aware of:
When someone mentions a check, this is what usually comes to mind. A personal check is a slip of paper issued by your financial institution that draws funds from your checking account. The check includes your financial institution’s routing number and your account number. The date, check recipient, amount, and signature line are all left blank for you to fill out when it’s time to make a payment. When you pay an individual or business with a personal check, your financial institutions transfers the money to the recipient’s account or wherever it is being cashed. However, one major flaw for personal check recipients is that there is no guarantee the account a check is tied to has enough funds to cover the amount. If someone tries to cash a check from an account with insufficient funds, it will bounce. Basically, both the recipient and check-writer can both be dinged with fees. This is especially frustrating for the recipient, who may not only face a fee, but won’t receive the funds they were expecting from the check.
These are also referred to as bank checks or official checks, and require a teller to withdraw funds from your account to cut a check from the financial institution to pay the recipient on your behalf. Because the funds have been guaranteed by the financial institution, a cashier’s check won’t bounce. This check is less risky for the recipient and is often preferred when accepting a large payment. When cutting a cashier’s check from your account, you should expect to pay a small fee. The fees are usually somewhere around $5 – $10.
For those who spend a lot of time traveling to other countries, they may be familiar with traveler’s checks. These are checks that are both prepaid and insured, and can be used in lieu of cash in most hotels or stores while abroad. Another benefit is that the checks allow the traveler to convert money into the currency accepted at their destination. This reduces the risk of having to carry a large amount of cash to be exchanged (often for a fee) in the country you’re visiting. With the checks being insured, any amount lost will be replaced in the event they are stolen, lost, or damaged. Because of these unique benefits, they are often preferred over credit cards when traveling.
Bearer and Blank Checks
Both of these checks are rare, as they pose a higher liability for the check-writer. A bearer check is a personal check written out to “cash” instead of a recipient’s name. That means anyone in possession of the check can cash it. A blank check is a personal check in which the check-writer omitted the payment amount. The recipient can then write in their own amount and cash it. There needs to be a lot of trust between the check-writer and recipient, as someone could easily take advantage of the situation and cash however they please. Blank checks are deemed useful when the check-writer is paying for something, such as gas for a spouse’s vehicle or for groceries, but doesn’t know what the exact amount will be. They can be a liability, so think twice before cutting a blank check.
If you have any questions about how to write a check, or what checks you should write or accept, contact your local credit union.