Definition
A cashier’s check is a draft guaranteed by a bank, drawn on its own funds and signed by a cashier or teller. It is a secure payment method where the amount is paid in full before the check is issued. The bank, rather than the purchaser, is responsible for paying the payee.
Key Takeaways
- A cashier’s check is a secure form of payment issued by a bank, ensuring the recipient that the funds are available and guaranteed. It is pre-paid by the person issuing the check, meaning the bank is responsible, not the individuals involved in the transaction.
- To get a cashier’s check, a customer must pay the bank the amount the check is worth upfront, plus any applicable service fees. Unlike personal checks, this ensures that a cashier’s check will not bounce due to insufficient funds.
- Cashier’s checks are often used for large transactions, such as buying a home or car, because they’re considered more secure. However, it’s important to beware of scams involving counterfeit cashier’s checks.
Importance
A cashier’s check is an important financial instrument, primarily because of the security it offers.
It is a check guaranteed by a bank, drawn on the bank’s own funds and signed by a cashier.
This becomes preferable when the payer wants to ensure that the funds are available and the risk of the check bouncing is eliminated.
In real estate transactions or other large-scale purchases, a cashier’s check is a preferred method of payment due to its verifiable and secure nature.
It offers value to both the payer and payee by providing a credible means of transfer, thereby fostering trust in financial transactions.
Explanation
A cashier’s check serves as a secure form of payment, primarily used in transactions where large sums are involved and the parties require a guarantee of payment. It is issued by a bank and paid out of its own funds, replaced by the funds of the purchaser who orders the check.
Because a bank, or another financial institution, stands behind cashier’s checks, they are regarded like cash, thus providing a more secure form of payment especially in transactions where the recipient is unsure of the trustworthiness of the payer. Often, transactions such as buying a house, a vehicle, or jewelry, involve large amounts and potential risk for the seller if the buyer’s personal check would bounce.
In situations like these, a cashier’s check is used because it provides assurance that the funds are there. Due to the bank guarantee, it’s almost like cash, but safer, since unlike cash, a cashier’s check is traceable.
These checks are also used when businesses need to pay out large sums, like in lotteries or cash prizes, providing confidence to the recipient that the promised money truly exists.
Examples of Cashier’s Check
Real Estate Transactions: A frequent real estate transaction is the purchase of a new home. To avoid the risks associated with personal checks or large amounts of cash, many real estate companies and sellers require the use of a cashier’s check for payment. This ensures the secure and immediate availability of funds during the transaction.
Buying a Used Car: When purchasing a used vehicle from a private seller, the seller might request a cashier’s check. This assures the seller that they will get the agreed upon amount without risking a bounced personal check.
Large Purchases: For example, if you want to buy an expensive piece of jewelry from a private seller, they may ask for a cashier’s check. Given the high value of the item, the seller wants certainty that the funds will be delivered. The cashier’s check, once created and signed off by the bank, ensures the funds are available and secure.
FAQs on Cashier’s Check
What is a cashier’s check?
A cashier’s check is a type of check issued by a bank or credit union and signed by a cashier or teller. Unlike a regular check, the bank guarantees the cashier’s check, not the check writer.
How can you get a cashier’s check?
You can get a cashier’s check at a bank or a credit union. You’ll need to provide the name of the payee, as well as your own account number. Some financial institutions may require that you have an account with them to obtain a cashier’s check.
What fees are associated with a cashier’s check?
Most banks and credit unions charge between $5 and $10 for a cashier’s check, but fees can vary. Some financial institutions may waive the fee for premium account holders.
Is a cashier’s check safer than a personal check?
Yes, a cashier’s check can be safer than a personal check because the funds are guaranteed by the bank or credit union that issues the check. This makes it a safer form of payment for the recipient.
Can a cashier’s check bounce?
No, a cashier’s check cannot bounce. The amount of the check is paid for at the time it is issued and the bank or credit union guarantees the funds, meaning there is minimal risk of the check bouncing.
Related Entrepreneurship Terms
- Bank Draft
Payee
Guaranteed Funds
Remitter
Financial Institution
Sources for More Information
- Investopedia – A comprehensive website offering a wide range of topics related to finance and investing, including a detailed explanation of cashier’s checks.
- NerdWallet – Provides advice on managing money, with a specific section dedicated to understanding different types of checks, including cashier’s checks.
- Bankrate – A leading site that answers personal finance and investment related questions, including what a cashier’s check is and how it works.
- The Balance – Offers expertly crafted articles covering everything from banking to investing, also explains cashier’s checks in depth.
