3900policies
Guaranteed and Special Checks
There are times when your personal checks are just not good enough -
especially when large amounts of money are involved. That's when
guaranteed checks are convenient - and necessary.
Cashier's Checks
Sometimes called bank checks, they guarantee that the check is good because it is drawn
against the bank's account.
How they work
You give the bank money for the amount of the check you want them to write, along with your
name and the name of the recipient. The bank officer makes out the check - which is
usually machine-printed so it cannot be altered - signs it, and hands it to you. You also
receive a carbon copy as a record, since the cashed check is not returned to you. The
charge for a bank check is usually half the charge for a certified check. You cannot stop
payment once the check reaches its destination.
Money Orders
They are useful if you don't have a checking account. They cost about $2.50 at banks and
75¢ at post offices, making them the least expensive guaranteed checks.
How they work:
You pay the teller or clerk the amount you want the money order made out for, plus
a fee. The amount is printed on the money order. You fill out the requested
information, sign it, and send it. (A bank will sell you a money order even if
you don't have an account there.)
Money orders are a
reasonable alternative to checks if you need them occasionally, but they have
limitations. The money order is not returned to you, so you don't know if or
when it's been cashed. Also, you can't stop payment once you've sent the money
order, and there are restrictions on the amounts - up to $250 on a bank order
and $1,000 on one from the post office.
Certified checks
They are personal checks that
your bank guarantees it will honor. People who don't know you may want
assurance that your check is good - especially if it's for a large amount, or
they think you might change your mind and stop payment. These people want your
check guaranteed so they can be confident of being paid.
How they work:
After you write the check, your bank puts a hold on (or freezes) your account
for the amount of the check and stamps the face of the check
"certified."
There is a fee for
each certified check, but there is no limit on the amount of the check,
provided you can cover it. Also, you can't stop payment on certified checks
after they reach their destination.
Traveler's checks
They are popular when you're
away from home, since local merchants may be reluctant to accept your personal
checks. Traveler's checks are less risky because they are guaranteed by the
issuer. You can get them from banks, credit card companies, or travel
companies. A great advantage: you can replace them if they're lost or stolen
simply by calling the issuer.
How they work:
You can buy the checks in various denominations or amounts and in local or foreign
currencies. You sign your name when you receive them, and again when you cash
them. Once you use a check, it is returned to the issuer, and you have no
official record of using it.
There is usually a
1% charge for buying the checks, unless they are free for keeping a lot of
money in your account or as a perk of membership in certain groups.
From: The Wall Street
Journal Guide to Understanding Personal Finance, 1992