By Justin Grensing | American Express Credit Intel Freelance Contributor
5 Min Read | August 4, 2021 in Money
Because they’re funded by the bank, not a personal account, cashier’s checks can be a secure and convenient way to transfer large sums of money, usually between a person and a business.
A legitimate cashier’s check can’t bounce unless the bank fails – but beware, because cashier’s checks are sometimes targets for scams.
You may have heard of cashier’s checks, but have only a vague idea of what they are. It helps to understand that businesses often prefer cashier’s checks for large transactions, particularly when payment is being made by a person rather than another business or organization. Here are some key things to know about cashier’s checks, such as why you might want to use one, what sets them apart from other types of checks, and what you may want to know before accepting one.
When a bank issues you a cashier’s check, it takes the money from you or your account and transfers it to its own account. When the recipient cashes that check, the money is paid directly by the bank. This means the recipient takes no risk that the payer wrote a check they don’t have funds to cover. Additionally, cashier’s checks are certified by banks, often with security tools like watermarks and color-changing ink, to help avoid fraud.
When you hear the word “check,” you probably think of the personal checks you write from your bank-issued checkbook. A personal check is essentially a written promise by one person to pay another person or a business with money from the payer’s bank account. No actual money changes hands when the check is written. Once the check is cashed, money is taken out of the payer’s account and transferred to the recipient. But for large transactions like real estate down payments, a more secure, guaranteed option like a cashier’s check may be required.
A couple of the main advantages of cashier’s checks over personal checks are:
Many consumers confuse a cashier’s check with a certified check. Both are issued by banks and are more secure than personal checks, but cashier’s checks offer greater financial protection than certified checks. When a bank issues a certified check, it verifies that the signature of the payer on the check is genuine and confirms the payer has sufficient funds in their checking account to cover the check at the time the check is issued.
However, the funds are not deducted from the payer’s account until the check is cashed, so there’s no guarantee there will be sufficient funds to cover the check when it’s cashed. The risk here is that, hypothetically, the payer could spend all their money as soon as they leave the bank with their certified check, and the check will bounce when the recipient tries to cash it.
The perception of cashier’s checks as a secure way to guarantee payment of large sums of money makes them a target for fraud. The FDIC warns of a number of common scams involving cashier’s checks, most of which involve criminals creating fake checks.4 If you’re the recipient of a cashier’s check, here are some ways to avoid being scammed:
Cashier’s checks can be a secure and convenient way to transfer large sums of money between two parties. Many businesses prefer cashier’s checks over personal checks and certified checks because the funds are guaranteed by the bank up to the time the receiving party cashes the check. However, the use of cashier’s checks for transferring large sums of money has made them a target for fraudsters, so it’s a good idea to take care when receiving cashier’s checks.
1 “Cashier’s Check Fee Comparison at Top 10 U.S. Banks,” My Bank Transfer
2 “Should You Pay With a Money Order or a Cashier’s Check?,” Money.com
3 “All About Certified Checks,” Smart Asset