Suppose you want to buy a car, make a down payment to purchase a home, or pay the first and last month's rent to lease an apartment. You may not be able to use a personal check or credit card for these transactions, and you probably don't want to walk into a dealership or leasing office with a big wad of money.
A better option may be a cashier's check. You may have to pay a small fee to get one, but it can be well worth the cost and extra effort to make your financial transaction faster and safer.
What Is a Cashier's Check?
A cashier's check is a paper check that's drawn against your bank's account rather than your personal account. In effect, your bank stands behind the check and guarantees that the recipient, or payee, can deposit or cash it and receive the promised funds.
Recipients may prefer cashier's checks because:
-- They're almost equivalent to cash, but the risk of theft is lower.
-- They're guaranteed. Unless a cashier's check is fraudulent, there's almost no risk that it will be declined, or "bounce."
-- They're fast. Banks must make the first $5,000 available within one business day. Additional funds or amounts the bank suspects may be fraudulent may be held longer, however.
[Read: Best Checking Accounts.]
The name "cashier's check" refers to the bank's teller, who may also be called a cashier.
Despite the name and the association with banks, it's not only banks that issue cashier's checks. Credit unions also offer them.
How Is a Cashier's Check Different From a Money Order or Certified Check?
Cashier's checks, money orders and certified checks are all alternatives to personal checks and paper money. They have that in common, yet there are some differences, too.
"A cashier's check is a check drafted on the bank's account. A money order is the equivalent to cash. A certified check is a check that's drafted against your account but certified by the bank as being payable, i.e., from a valid account with sufficient funds," says Leibel Sternbach, a financial advisor and founder of Yields4U, an investment advisory firm in Plainview, New York.
Money orders may be purchased with cash or a debit card. They're available not just from banks and credit unions, but also from nonbank outlets, such as Western Union, the U.S. Postal Service and some retailers. They're usually limited to $1,000.
[Read: Best Savings Accounts.]
Steps for Getting a Cashier's Check
To get a cashier's check, you'll have to request one from your bank or a credit union either online or in person at a brick-and-mortar location. If you request a cashier's check online, you'll need a U.S. mailing address to receive it. You can't print cashier's checks yourself at home.
Most banks issue cashier's checks only to their own customers, so you'll typically need an account to get this type of check from a bank. Credit unions often will issue cashier's checks to members of other credit unions as well as their own members.
If you don't have the funds for the cashier's check in your account, you'll have to bring a paper check or arrange for a transfer or direct deposit to make the funds available.
When you request a cashier's check, be sure to specify the amount and recipient, both of which should be printed on the check.
You should bring identification, such as a driver's license or passport, and expect to pay a modest fee, such as $8 per check. Ask for a receipt for the fee and the check itself.
[Read: Best Money Market Accounts.]
Watch Out for Cashier's Check Scams
Cashier's checks are popular with scammers, so you should be wary if you receive one.
Ron Strobel, a financial planner and founder of Retire Sensibly, an investment advisor in Idaho, explains how the scam works with online purchases:
A distant buyer, typically in a faraway state or foreign country, mails a cashier's check to the seller. The check is larger than the agreed-to purchase price. The buyer then asks for a refund of the extra amount via an instant online funds transfer service or wire transfer. The seller doesn't find out the check is fraudulent until after wiring the "overpayment" back to the "buyer."
"The scammer might create urgency by saying they accidentally sent too much money and they need it back urgently for something important like paying their rent," Strobel says.
At best, the seller loses the cash wired. At worst, the seller loses the cash and the item sold if it was already shipped.
A similar scam substitutes a "friend" for the buyer. Red flags to watch out for with this variation of the scam include:
-- An elaborate story as to why your "friend" needs help.
-- Messages and calls that become more desperate, persistent or direct if you don't send the money right away.
-- Subsequent requests for more money.
-- Promises and excuses for why your "friend" can't travel to meet you and always needs more money.
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