Check

Definition

A check is a written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer. The entity writing the check, known as the drawer, has a transaction banking account (often a checking account) where the money is held. The recipient of the check is known as the payee. The check instructs the bank to provide funds from the drawer’s account to the payee or to the order of the payee.

Examples

Personal Check: A standard check issued by an individual, from their personal checking account, typically used for personal or household expenses.
Commercial/Business Check: A check issued by a business entity, used to make payments for business-related expenses.
Cashier’s Check: A check written by a bank on its own funds, signed by a cashier, guaranteeing the payment.
Certified Check: A personal check that the bank guarantees, verifying that sufficient funds exist in the account of the drawer and earmarking those funds for the payee.

Frequently Asked Questions

Q1: What is the difference between a cashier’s check and a certified check? A: A cashier’s check is issued and guaranteed by a bank, using the bank’s own funds. In contrast, a certified check is a personal check where a bank guarantees there are sufficient funds in the account holder’s balance to cover the check amount.

Q2: Can checks be written for any amount of money? A: While there is technically no cap for the amount on a check, it should be noted that banks may place certain limits for large dollar amounts and require additional verification steps.

Q3: What happens if there are not enough funds in the drawer’s account? A: If there are insufficient funds in the drawer’s account to cover the check, the check may be returned unpaid or “bounced,” and the drawer may incur overdraft fees, and potentially a penalty or legal implications.

Q4: How long is a check valid? A: Generally, checks are valid for six months from the date of issuance, though policies may vary by bank and type of check.

Q5: Can a check be canceled after it’s written? A: Yes, a check can often be canceled or “stopped” using a stop payment request, provided it hasn’t already been cashed or deposited.

Cashier’s Check: A check that is guaranteed by a bank, drawn on the bank’s own funds, and signed by a cashier.
Certified Check: A personal check for which a bank has confirmed the availability of funds and promised to pay.
Demand Draft: A pre-authorized draft by a drawer, often used in international trade, to pay a specific sum of money on-demand.
Post-Dated Check: A check that is written with a date in the future in order to delay payment until the indicated date.

Online References

Suggested Books for Further Studies

The Check Book: The essential guide to making and accepting checks by Jane Murphy
Banking Basics: An essential guide to banking, including handling checks by Partnership Education
The Law of Checks and Drafts by Henry J. Bailey & Richard B. Hagedorn
Checks & Balances: A Study of the Modern Usage of Checks by Susan Posey

Fundamentals of Checks: Banking Basics Quiz

### What is the primary function of a check? - [ ] To incur debt - [x] To direct a bank to pay a specific sum of money - [ ] To calculate interest - [ ] To authenticate identity > **Explanation:** The primary function of a check is to direct a bank to pay a specific sum of money to the bearer or to the payee. ### Who is the entity that writes a check? - [ ] Payee - [ ] Bank - [ ] Bearer - [x] Drawer > **Explanation:** The entity that writes the check is known as the drawer. ### What happens if a check is written with a future date? - [x] It is considered a post-dated check. - [ ] It is invalid immediately. - [ ] The bank rejects it. - [ ] It is treated as cash. > **Explanation:** A check written with a date in the future is considered a post-dated check. ### Which type of check is guaranteed by the bank and uses the bank's own funds? - [x] Cashier's Check - [ ] Certified Check - [ ] Personal Check - [ ] Business Check > **Explanation:** A cashier’s check is guaranteed by the bank and uses the bank’s own funds. ### What entity guarantees the availability of funds in a certified check? - [ ] The drawer - [x] The bank - [ ] The payee - [ ] The government > **Explanation:** The bank guarantees the availability of funds in a certified check. ### How long are most checks generally considered valid? - [ ] 1 month - [x] 6 months - [ ] 1 year - [ ] Indefinitely > **Explanation:** Most checks are generally considered valid for six months from the date of issuance. ### Which of the following can potentially incur a fee if a check is bounced due to insufficient funds? - [ ] The bank - [x] The drawer - [ ] The bearer - [ ] The payee > **Explanation:** The drawer can potentially incur a fee if a check is bounced due to insufficient funds. ### Can a check be canceled before it is cashed or deposited? - [x] Yes, by placing a stop payment request - [ ] No, once written it cannot be canceled - [ ] Yes, only by the payee - [ ] It depends on the amount of the check > **Explanation:** A check can be canceled before it is cashed or deposited by placing a stop payment request. ### What information is typically included on a check? - [x] Date, payee name, amount, and drawer signature - [ ] Date and drawer's full address only - [ ] Payee name and bank's address only - [ ] Drawer’s initials and a barcode only > **Explanation:** A typical check includes the date, payee name, amount, and drawer's signature. ### What is the term used for the recipient of the check? - [ ] Drawer - [ ] Banker - [x] Payee - [ ] Drawee > **Explanation:** The recipient of the check is known as the payee.

Thank you for studying the fundamentals of checks and equipping yourself with this essential banking knowledge. Keep exploring more financial instruments and enhancing your proficiency!