Checks have long provided a convenient alternative to cash and credit cards. Believe it or not, some small businesses, educational institutions and state or local government bodies either don't accept debit or credit cards or will charge a fee to defray costs for accepting and processing them. Why? Because card payment processing companies like Visa and MasterCard charge them hefty fees when you pay by card, which means that they only receive part of the money you pay them. Checks, on the other hand, are a face-value financial instrument. As long as sufficient funds are in your account, the merchant or payee receives every penny of the payment. After they have been cashed, however, the vast majority of checks end their life in a bank's shredder. If you're curious about what happens between your checkbook and the gleaming blades, Get.com has your answer.
How Checks Work
A check is simply a written order that tells a bank to pay a specified amount of money to the person who is designated on it or who presents it for payment. It carries a date, the payer's personal information and bank, a directive to "pay to the order of," the payee's name, the dollar amount in both Arabic numerals and words, and the payer's signature. At the very bottom are your bank's routing number, your checking account number and the actual check's ordered number in scannable, magnetic ink character readable (MICR) numerals. Eventually, one more MICR number, the amount of the check, will be encoded to the right of those original three.
To cash a check, you must endorse the back of it with your signature written exactly as it appears on the "pay to the order of" line. Wait to endorse it until you're at the bank and ready to cash it; if you lose it after you endorse it, someone else (the finder) may decide to cash it instead. Banks can refuse to honor checks that are 6 months old, so cash or deposit them promptly.
You can cash a check at your bank's drive-through, with a teller inside your bank, at an ATM or even on your smartphone thanks to your bank's mobile app. Most banks will cash checks for you only if you have an active account with them. You may be able to present the check at the bank listed on the check, but note that most banks charge service fees to non-customers. Some merchants may also cash it for you, but they, too, usually charge an additional fee.
Similar to cashing a check, you can deposit a check in several ways once you've endorsed it:
- Fill out a deposit slip, and take it to a teller at your bank or use your bank's drive-through.
- Deposit it at an ATM. If you have more than one check to deposit, you may need to complete the deposits as individual transactions, depending on your ATM.
- If you want to deposit it to your credit union account, any credit union can fill out the deposit slip and ensure your money reaches its intended destination.
- You can use your bank's mobile banking app.
- You can even mail your check and deposit slip to the bank for deposit. You may have to contact the facility first, however, to ensure you send it to the correct processing facility for your geographic location.
Advantages And Disadvantages Of Checks
Pro: Checks are convenient financial instruments for both customers and merchants, payers and payees.
Con: For merchants or individuals (especially those without access to risk verification technology), several days may pass before you're alerted that a check was fraudulent or rejected due to insufficient funds. If a check is returned, you'll be assessed a returned check fee.
Pro: You may write a check, but your money stays in your account until the payee presents the check to the bank. This gives you time to stop the payment if there's been a mistake.
Con: If the merchant deposits your check electronically via the cash register or other mobile device, your check's amount will be deducted from your account nearly as quickly as if you'd used a debit card.
Pro: Carrying a check is far less bulky and heavy than carrying cash, especially when distances are involved. Checks are also a more convenient way to make large payments.
Con: Many merchants and individuals are reluctant to accept out-of-state checks or those written on unfamiliar banks.
Pro: You can postdate a check, in effect scheduling the payment for a future date. This is very practical if you prefer to pay for goods or services immediately but only want the money to be deducted at a certain time (after your payday, for example).
Con: You will have to give your bank notice that you have issued a post dated check, and provide them with details about the payment. If you do not, the payee may deposit the check before the date and if you don't have enough money in your account at the time, you could be charged penalty fees and this could also negatively affect your credit score.
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