Many people think that a cashier's check is the same as a personal check, but these two are completely different from each other. Below is everything you need to know about them.
This is one of the most common types of bank checks. Usually, some banks allow their customers to buy personal checks from them. However, depending on the type of account you have with the bank, you may receive a free personal check from the bank.
How Does a Personal Check Work?
A personal check is the kind of check that draws money from your bank account and sends it to the recipient of the check. Basically, when you write a personal check, you're authorizing your bank to withdraw the stated amount from your bank account. Then, the payee receives the stated amount in their bank account after cashing the check.
A payee is a person or party to whom the money is paid to.
Personal checks are quite popular because they are:
- convenient and easy to use;
- safer than using real money; and
- cheaper than most payment options (you don't need to pay anything to deposit a check).
On the other hand, personal checks also come with some disadvantages.
Firstly, some businesses no longer accept personal checks due to the increased risk of fraud.
Secondly, your bank might charge you a service fee if you write too many checks.
Lastly, personal checks can be difficult to deal with when balancing your accounts. Because the payee may not cash the check immediately after receiving it, the current balance in your bank account might not be a true reflection of what you have in your account.
A cashier's check is the kind of check that draws funds from the bank's account, not yours. This option usually works best when you want to transfer large amounts of money from your bank account to the payee.
How Does a Cashier's Check Work?
A cashier's check works as a direct opposite of a personal check.
When the account holder wants to make a big purchase, such as a house, car, or piece of land, the cashier's check system comes in handy. The account holder (payer) authorizes the bank to withdraw a certain amount of money from their account.
The money is then transferred into the bank's own account. The check is processed and signed by a cashier or bank teller and then delivered to the payee. As a result, the check will appear as though it's been sent and signed for by the bank, not the payer.
So what's the purpose of having a cashier's check when you can have a personal check for the same transaction? To better understand why certain transactions work best with a cashier's check than a personal check, let's look at the advantages of the former.
Pros of a Cashier's Check
One great benefit of using a cashier's check is that it almost guarantees the money will be available. To put things into perspective, let's compare these two kinds of checks.
When you write a personal check, the payee will deposit the check in their bank. The bank will then withdraw the money from your account and transfer it to the payee's account. However, if your account doesn't have the money stated in the check, the transaction will be declined. This is what is famously known as a “bounced check.”
The same applies if the check is fraudulent. The payee will not know about it until when they deposit the check.
On the other hand, things work differently when you use a cashier's check. First, your bank will withdraw the money from your bank account and set it aside (in the bank's own account). Then, the bank will write, print, and sign the check. You'll then deliver the check to the payee.
For this reason, a cashier's check guarantees that the money stated in the check is available. This explains why many businesses trust cashier's checks more than personal checks. It also explains why cashier's checks are more popular for bigger transactions than personal checks.
Earlier, we mentioned that after writing a personal check, your account balance might not truly reflect what you have in the bank account. For example, let's say you have $10,000 in your bank account and write a personal check for $5,000.
The payee receives the check but decides to bank it two weeks later. In that case, your bank account will still show $10,000, but in reality, you only have $5,000 remaining. This is because the other $5,000 will come out of your account when the payee deposits the check and is processed successfully.
Now let's look at the other side of the coin. When you have $10,000 in your bank account, and you decide to write a cashier's check for $6,000, your bank will withdraw the $6,000 and deposit it into their own account.
This means that you'll have $4,000 as your actual balance. So, for this reason, you won't go around planning for that one vacation you've always wanted to go to, thinking you have $10,000. That's something that happens quite often when dealing with personal checks.
Cons of Cashier's Checks
Cashier's checks might have many pros, but they are not perfect. The risk of fraud is always high regardless of the kind of check you use. Some fraudsters have invented different ways to create authentic-looking cashier's checks. Unfortunately, you'll only find that out when you deposit the check with your bank.
Some bank accounts don't offer cashier's checks for every client. This kind of check may only be available to customers with premium accounts.
In addition, some banks charge processing fees for cashier's checks. The exact fee depends on your specific bank but usually ranges between $5 and $15.
Lastly, a cashier's check is not as convenient as a personal check. To have this check written, you'll need to visit your local bank and speak with the cashier or teller. Although some banks might allow you to order these checks online, others don't provide this option.