When conducting larger transactions that need payment by check, there is often the ability to provide payment with either cashier's check or a certified check. These are both common ways of paying large amounts without the use of cash and without worrying about whether the full amount can be paid with a credit or debit card that may have a daily limit. Both types of checks can be used to pay or accept payments of several thousand dollars or more, but many people wonder what the differences are, if any.
Both cashier's checks and certified checks are official, bank-issued checks. The primary difference is that a cashier's check is drawn from an account belonging to the bank itself, while a certified check is drawn from an account with a sufficient balance that belongs to an individual.
Even though the owner of the account that guarantees the check may differ, that's not where the differences end. By knowing the similarities and differences between the two, and when they are best utilized, you can take a lot of the worry and guesswork out of making or accepting large payments. We're going to take a close look at just what it means to use each one, what they may cost you, and whether one may be safer or less prone to fraud than the other.
What Is A Certified Check
A certified check is a check that is provided by and verified by a bank or other financial institution. The money that the check will guarantee comes from a personal or business checking account. This means the individual payor will be responsible if the funds for the check are not available for clearance and the check is returned. A certified check will often take a similar amount of time to clear as any similar personal check.
A certified check is a more secure method of payment than a conventional personal check, or even a business check, due to the additional steps involved in issuing the check. First, the bank or credit union will verify your identity to reduce the potential for fraudulent activity. The bank will also verify that the check is being issued for an amount that your account has the funds to cover at the time it is written. Additionally, the check will bear an official bank or credit union stamp, watermark, hologram, or other security feature.
Depending on the terms of the bank or credit union where you are having the certified check issued, you may not have to pay a fee for it. Many banks will offer certified checks as a free service to account holders, while others may charge a nominal fee. You will not be able to obtain a certified check from an institution where you do not already have an account since they will need to verify your account balance beforehand to earmark the funds. In many cases, once funds in an account have been earmarked for a certified check, they cannot be used for anything else.
What Is A Cashier's Check
A cashier's check is a check that is drawn directly from and guaranteed by, a specific bank or credit union branch. This means that if the transaction fails for some reason and the check is returned for non-sufficient funds, the only party that is responsible is the bank itself. Since it is incredibly unlikely that the bank or credit union will not have the funds available in their account, cashier's checks are frequently seen as one of the safest and most secure forms of payment. Some of the most common situations where an individual may need a cashier's check are to buy a vehicle or to make their downpayment on a home.
To get a cashier's check, first, you'll need to find a bank or credit union that offers them, as not all do. There are also other institutions that will offer cashier's check services, such as a currency exchange or other similar financial institutions. Once you have found a source for your cashier's check, you'll need to show up with the full amount that is to be paid to the payee. This can be cash, bank transfer, or even credit and debit card use in some cases. Once you pay the bank, they will enter the payee on the check and will issue the check to you. This prevents anyone from depositing or cashing a check that isn't authorized during the check-writing process between the payor and the bank.
In some cases, you'll need to belong to a credit union or have an account at the bank in order to obtain a cashier's check for little or no fee. In other situations, you may simply be required to pay a fee to obtain the check, which will vary depending on the institution writing the check and your preferred delivery method. In many cases, a cashier's check will clear faster than a personal check.
Are There Fees For A Cashier's Check Or Certified Check
In the case of a certified check, there may or may not be a fee, as outlined in the terms of the bank or credit union which houses your account. In some cases, they may be free, while in other cases there may need to be a fee of between $2 and $15. On the other hand, for a cashier's check, there will always be a fee except in rare circumstances. The general fee for a cashier's check is going to be between $10 and $20. In cases where you need a cashier's check from your bank, the fee may be reduced by a few dollars if you have an account there.
When To Use A Cashier's Check vs. Certified Check
A cashier's check is ideal for making large payments for transactions in which paying with a personal check, credit card, or debit card isn't acceptable or easy. It also takes a significant burden of safety off of the payor, eliminating the need to carry more than $1,000 in cash to Some of the ideal situations for a cashier's check would include the down payment on a vehicle or a home, and sometimes even the deposit on an apartment lease will need to be paid with a cashier's check. Since they can clear quickly, cashier's checks are often used for real estate closings and brokerage transactions as well.
What Happens If You Lose A Cashier's Check Or Certified Check
Both cashier's checks and certified checks can be difficult, sometimes costly, to replace if they are lost. To replace a cashier's check the process can be particularly complex. If you lose either one, the very first thing you should do is contact the bank or credit union that issued the check to have the process started.
Replacing a cashier's check will generally require you to obtain an indemnity bond from an insurance agency since you won't be able to just ask the bank to stop payment on it. This bond makes you responsible if the check suddenly turns up and is cashed or deposited. You may be able to get such a bond from an insurer with whom you already conduct business, though not always, and you may need to shop around if not. Additionally, once you have the bond, you may still be required to wait up to 90 days before another check can be issued.
Cashier's Check vs. Certified Check: Which Is Safer
Both a certified check and a cashier's check are solid options for making a large payment and for processing a large amount from one account to another. In some cases, the payee will require one form of payment over another, making a choice between the two somewhat of a moot point. Even though they are both regarded as guaranteed funds, some payees will require that the account containing the funds not be a personal account, thereby requiring the funds to be transacted with a cashier's check.
If you need to pay someone, however, and there is no preference between the two payment methods, both are equally secure. Since the funds for a certified check are verified and earmarked for the check, and the funds for a cashier's check are coming from the bank's holdings, both are seen as "guaranteed funds" in either case. Since identity verifications and payee information is incorporated into the check issuance process, they are also equally secure and resistant to fraudulent or criminal activity.
The Bottom Line
Now that you know the differences not only in the checks themselves but in the issuance and funds guarantee process, you should be well informed when it comes to using both cashier's checks and certified checks. If your payee has no preference or requirement for payment, and all other things are equal, the smartest choice is often the most inexpensive. This means unless a cashier's check is required, you can probably use a certified check to make the same payment, with just as much security, while the actual check costs you a few dollars less.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.