When individuals wish to guarantee payment to someone they think of these three types of checks but often don’t know one from another. Let’s attempt to set them straight.
A Certified Check is a type of check where the issuing bank guarantees the recipient of the check that there is enough cash available in the holder’s account to be transferred when the check is used and also that the account holder’s signature on the check is genuine.
Certified checks are typically used in situations where the recipient is unsure about the creditworthiness of the account holder and doesn’t want to the check to bounce. Because certified checks become the issuing bank’s liability, banks will typically set the amount of money listed on the certified check aside in the holder’s account so that there will always be money available to honor the check.
There are some downsides to using certified checks. Banks will usually charge a fee for certifying checks and the depositor usually cannot place a stop payment order on a certified check.
A Cashier’s Check is written by a financial institution on its own funds. It is then signed by a representative of the financial institution and made payable to a third party. A customer who purchases a cashier’s check pays for the full face value of the check and usually also pays a small premium for the service. These checks are secured by the funds of the issuer – usually a bank – and include the name of a payee (the entity to which the check is payable), and the name of the remitter (the entity that paid for the check).
An individual could use a cashier’s check instead of a personal check to guarantee that his or her funds for payment are available. A cashier’s check is secured because the amount of the check must first be deposited by the individual into the issuing institution’s own account. The person or entity to whom the check is made out is then guaranteed to receive the money when cashing the check.
Cashier’s checks differ from certified checks in that the funds owing on a cashier’s check are taken from the issuer’s account, while the funds owing on a certified check are taken from the remitter’s account.
Because a Certified Check and a Cashier’s Check are written on funds held in a financial institution, and because they are numbered and registered by that institution, both can be replaced if they are lost or stolen. However, this is often an arduous process and due care should be taken to insure that this does not happen.
A Money Order can also be issued by a bank or other financial institution, but they are also available in many other places like convenience stores or grocery stores. However, the largest issuer of money orders is the US Postal Service, which devised the money order as a relatively safe and easy way to send funds in the mail without resorting to cash.
A money order is a payment order for a pre-specified amount of money. It is a more trusted method of payment than a personal check, because it is required that the funds be prepaid for the amount shown on it. So, like a Cashier’s Check the money does not come directly from the payer, but from a third party. This inspires confidence even if the money order comes from a 7-11 store.
Unlike Certified Checks and Cashier’s Checks, Money Orders are limited in the amount of money they can represent. US Postal money orders have a maximum value of $1000, and International Postal money orders cannot be for more than $700.