Checks: What they are and how to use them

A check is a financial instrument indicating that an amount of money should be withdrawn from a bank account. Some checks are guaranteed by your bank.

Published January 22, 2019

A check is a financial instrument indicating that an amount of money should be withdrawn from a bank account listed on the check and given to the recipient also listed on the check. You can write a personal check against your checking account or money market account, but not your savings account.

Checks can be cashed – that is, converted to an amount of cash up to and including the face value – as well as deposited, in which the bank with which you have an account places an amount of money into your checking or savings account equal to the face value of the check minus any cash you choose to receive.

In the age of digital payments, paper checks have become less and less prominent. Still, checks are needed in a number of everyday transactions. Many people who do not have a checking or savings account receive checks as payment, which are cashed at the bank that issued the check or another store with check-cashing services.

There are several types of checks, including personal checks, cashier’s checks, and money orders. Federal law regulates how quickly banks must make check deposits available to you for use as well as the consequences for depositing a bad check.

Read on:

Using checks to pay and get paid

Checks are a relic from a time before debit and credit cards. They made it easy to make a purchase without having to carry all your cash around. In modern times, your debit card can access your checking account just like a check, so it’s rare to use checks for everyday transactions.

However, checks are frequently required for major, infrequent transactions, such as:

Checks are also how you get paid. Many people who use direct deposit to receive their wages might never see a paycheck from their employer. But others may receive checks, and these can be either deposited in a bank or credit union, or cashed.

When depositing a check, you may experience a delay before the funds are available for you to use. Recently, this delay, which is called “float”, has been reduced so much that you can usually use the funds within one or two business days. Some exceptions, which we’ll go into later below, apply.

When you deposit or cash a check and the person who wrote you the check doesn’t have enough funds in his or her account to cover it, the check may “bounce.” You could be charged a nonsufficient funds fee (NSF fee) and you will owe the bank an amount of money equal to the face value of the check. Usually, that just means taking back the deposited amount, but if you’ve already spent the deposit, then you’ll have to find another way to come up with the cash.

Depositing a check

If you have a checking or savings account, you can deposit a check at any branch of your financial institution, or, frequently, one of its ATMs. Many banks allow you to deposit the check remotely by taking a picture of the check with a mobile app.

In order for a check to be valid, you need to endorse the check, which means signing it on the back. (The person or entity that wrote the check also needs to sign it on the front.) Your endorsement is an understanding that the check is legitimate and that the other party has the funds to transfer to your account.

Your bank or credit union will scan the check, and that technology easily reads the information on the check and processes the transaction. For your reference, you should also be able to find an image of the scanned check in your banking history if you use your bank’s website.

Availability of funds

When you deposit a check, the money isn’t available right away. That’s because your bank needs to process the transaction, which could include communicating with the other bank over a network if the check was written from a different institution.

The Federal Reserve requires that banks make at least $100 from the deposit available to withdraw as cash within one business day. Many banks up that to $200. If your bank is in the same “processing region” as the other bank, then the rest of the deposit will become available to you by the third business day, barring any issues with either account.

Banks outside of the “processing region” of the other bank have up to six business days to make the full deposit available to you.

If you deposit checks that add up to $5,000 in one day, banks may extend their hold schedules beyond the six-day maximum. Banks are also allowed to delay making the deposit available to you if you a history of overdrafting your account (spending more money than you have in your account) or if they have another reason to believe that the funds can’t be collected from the other account.

Be cautious, though, especially with larger checks. It may take weeks for your bank to realize that the other account has nonsufficient funds, which can happen even if the deposit was made fully available to you. If you already spent the money, you’ll still have to pay it back, and the bank usually automatically deducts it from your account in addition to charging you NSF fees and overdraft fees.

Using checks with online banks

Online banks allow you to write checks with them just like brick-and-mortar banks. You can use your online bank’s mobile app to deposit the check, and you can also pay with a check tied to the online bank.

Some online banks may have limitations in their check-writing capacity. For one, if you want a cashier’s check – a check that cannot bounce because it has been prepaid – you’ll have to wait for the online bank to mail it to you. That could cause a problem if you need the cashier’s check right away, like when putting a down payment on a home in a tight market.

Cashing a check

Cashing a check means redeeming it for its face value. If you already have a bank account, you can choose to receive some part of the value in cash and deposit the rest in your checking or savings account.

But you don’t need to have an account with a bank or credit union to cash a check. You can cash the check at the bank where the checkwriter’s account is located, although you may need to show at least one form of ID. You can also take the check to a business that offers check cashing, which is offered at some grocery stores, big-box retailers like Walmart, and gas stations, but you may have to pay a fee for this service.

As with depositing checks, if the person who wrote you the check doesn’t have the funds in his or her account, you’ll be legally responsible for returning the cash. You could be charged a fee, too.

Handling large-value checks

It’s a common misconception that you can’t deposit high-value checks, but nothing could be further from the truth. In most cases, banks don’t limit the amount you can deposit from a check.

You’re allowed to deposit checks over $10,000 at any branch or ATM. If you cash such a check instead, the bank won’t get in the way, but they will have to report it to the Internal Revenue Service (IRS), as they must do with all cash transactions over $10,000.

The rules are slightly different when depositing a large check using a mobile app. Most banks limit mobile-app deposits to a certain daily dollar limit, which ranges from $5,000 to $50,000. Some banks have an additional monthly limit for check deposits.

How to fill out a check

Every personal check has the same components on its face. When you pay with a check, you’re responsible for filling out the appropriate sections. Not every line needs to be filled out, but most do. The components are:

  • The date: Indicates when the check was written. Banks are not required to honor a check older than a certain number of days since the check was written, but the exact length of time varies from bank to bank.

  • The check number: This is typically a three-digit number in the corner of the check. It’s used to help you keep track of the checks you write, but also lets banks determine if a check has already been deposited or cashed before. The number is scanned along with the other info on the check, and it’s illegal to use a check more than once.

  • The payee line: Where the name of the person or entity being paid is written. Usually prefaced by the phrase “Pay to the order of…”

  • The amount line: Where you write out the amount of the check in words, like “One hundred dollars and sixteen cents.”

  • The amount box: Where you write out the amount of the check in numbers, like “100.16.” The check may have a pre-printed dollar sign (or the relevant currency symbol if you’re in another country).

  • The name of the bank: You won’t need to write anything in here since it’s usually pre-printed on the check. This helps the payee know where to go to cash the check if he or she doesn’t have a bank account, or if there’s another problem with the check and the bank needs to be contacted.

  • The “for” line: Where you can describe the purpose of writing the check, such as paying rent. This line is completely optional.

  • The signature line: The person who wrote the check must sign the check on this line. If there is no signature, then the check is invalid.

  • The routing number: A nine-digit code that indicates which bank the check is drawn from. This is scanned by a bank’s software when you attempt to cash or deposit a check there. A bank may use the same routing number for all its branches in a state or region, and online banks typically only have one routing number for the whole country.

  • The account number: A seven-digit code next to the routing number that tells the bank which account to withdraw funds from. Every account you have has its own unique number even if they’re at the same bank.

  • The endorsement line: Every check needs to be endorsed, which means the payee — not the person writing the check — agrees to have the money put into his or her account and that he or she is responsible for the check if it bounces. The endorsement line is on the backof the check.

Buying checks

You’ll often get a set of free checks when you open a checking account with a bank or credit union. You can also buy additional checks from them.

Many people find it more affordable to buy checks from a third-party service. In terms of usage and account security, these checks have virtually no difference between those you get from a bank.

To order checks from a third-party vendor, you have to submit personal information like your home address, routing and account numbers. These services offer nearly unlimited ways to customize the design of the check, although the fundamentals must remain the same.

Checks come in the form of a checkbook. When you buy checks, you’re typically buying hundreds of checks at a time, collected in a stack of several checkbooks.

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Types of checks

There are many different types of checks, which vary in usage.

Personal checks

The most commonly used kind. This is the type you use for your usual transactions, often filled out by hand. If the check is tied to a joint bank account, then either owner of the account is allowed to write personal checks against the account.

Business checks

Business checks are usually larger in size than personal checks but work virtually the same. However, they come with security features like watermarks and hologram labels that make them difficult to forge.

Money order

A money order is a type of check that is guaranteed by the issuing bank. That means it provides much more security than a personal check. You may be required to pay with a money order, or one of the other guaranteed checks below, when making a big purchase or putting money down into a security deposit.

Money orders can often be purchased from big-box retailers, convenience stores, grocery stores, and your local U.S. post office, usually for a small fee of no more than $2 or $3. In most cases, you’ll have to purchase the money order with cash or a debit card; in the rare event that you can purchase the money order with a credit card, it will be counted as a cash advance and your bank will charge you cash-advance fees.

Not only can money orders be purchased at local retailers; they can also be cashed at them, too, up to a limit. Check with a given retailer for more information, but expect to pay a small fee to cash a money order.

Cashier’s check

A cashier’s check is a type of money order that you can only get from your bank or credit union. You pay for a cashier’s check either with cash or a debit directly from your bank account, including any fees, which are usually higher than those of money orders.

You can get a cashier’s check in any amount as long as you have the funds available. As with a money order, the cashier’s check is prepaid and can’t be rejected due to nonsufficient funds.

When you pay with a cashier’s check, the money in your checking accounts goes into the bank’s escrow account. The bank (or credit union) then issues the cashier’s check from its own funds.

Certified check

A certified check functions like a cashier’s check except that its funds are drawn from your checking account directly rather than the bank’s.

With a certified check, a check with your account number and routing number is printed and that certifies that you have the funds in your bank account. As with a money order or cashier’s check, the bank guarantees that the money is in your account.

Like money orders and cashier’s checks, the certified check fee varies from bank to bank. Certified check fees are similar to cashier’s check fees, costing about $8 to $15 per check.

How to avoid getting scammed with a bad check

In recent years, a type of scam has emerged to prey on people looking for well-paid jobs. It begins with a legitimate-seeming job posting an amazing career opportunity. Once you’ve applied, getting the job offer is surprisingly easy. The company may say you need to deposit a large check from them first to purchase some kind of item allegedly related to your employment.

The check they send you is usually for a far larger amount than you expected, but the scammer will say they made a mistake and ask you to deposit the check and send them the difference. So you deposit the check, send the scammer the money, and maybe purchase the item.

But a few days later, your bank tells you that the scammer’s bank doesn’t have the funds, so now you’re out not only the amount of the check you deposited but also the amount you sent the scammer, who is now long gone with your money.

In one variation of this scam, the fake company asks you to buy its own products with the money before sending them the excess cash. The products don’t exist, and neither does the scammer’s bank account, so once your bank reverses the deposit, you’re out even more money.

This scam is an update on the advance-fee scam, colloquially known as the “419 scam” associated with unlucky Nigerian princes, which tricks people into paying money in order to receive much more money in the near future.

To avoid getting scammed, never deposit or cash checks from people you don’t completely trust, and if you have even a tiny doubt about the person’s legitimacy, always wait at least 30 days before spending any of the deposit. That will give enough time for the bank to confirm that the other account does, in fact, have the funds.

You’ll be on the hook for any funds you spend that were deposited from a bad check as well as any fees associated it. While you may sue the person who wrote the check for that money, your legal remedies will be limited if you can’t locate him or her or if he or she is located in another country.

Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.

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