Financial Literacy Tips: Check Cashing 101

November 20, 2020

Financial literacy means being able to understand and effectively use various financial skills. Some of these skills include financial management and budgeting. In order to effectively manage your money, it is important to know about the different forms of money you are most likely to engage with and how to avoid making mistakes.

Although checks are not as popular as they once were, it is still important to understand what information it conveys, what it means to endorse a check, how checks can “bounce”, and how postdated checks work.

What is a Check?

A check is a signed form that permits one bank or financial service to transfer funds from the check issuer’s bank account to the check recipient’s bank account. A check can be used to move money between someone’s own account (if they are both the issuer and the recipient of the check), send funds to someone (for example, if you received a check for your birthday or graduation), or to pay for a service or bill.

Filling out a Check

When writing a check, there is both a “dollar box” – which is the rectangle on the far right-hand side of the check. In this box, the issuer writes the numerical value of the worth of the check.

There is also space immediately following the dollar box to write out, in words, the number in the dollar box. So, if you are paying $43.43, you would write “forty-three dollars and forty-three cents.”

In the instance that the dollar box and the written text do not match, check cashing institutions will default to use the amount that was written out in words. The number written out in words is more likely than the dollar box to reflect what the check writer intends to pay, which also means that as a check recipient, that is the amount you are legally entitled to (provided that the check is legitimate and the check writer has sufficient funds in their account). So, when someone issues a check, make sure that the number written out is legible and reflects the correct amount owed.

Endorsing a Check

What does it mean to endorse a check? On the backside of the check, there is a line at the top that requires a signature. This is a required step so that you can cash your check. However, you can also include additional details required to process the check correctly. For example, after you endorse (i.e. sign) the check, you can include “for deposit only.” That way, if you are unable to deposit the check for any reason – whether the check is stolen or lost – it will make it difficult or impossible for someone to steal your funds.

Sometimes, a bank won’t require you to endorse a check before deposit. Failing to endorse a check can keep some of your information private. The check issuer may be able to view online images of processed checks, including the portion of the check that is the endorsement area. Without an endorsement, the check issuer cannot see your signature or your account number.

Bounced Checks

Bounced checks are checks that were issued by the check writer, but the check could not be processed because there were insufficient funds in the account to make the payment. In these instances, the check writer’s bank will reject the payment request and return the check to the payee’s bank. In other words, the payment “bounces” back.

Bounced checks result in insufficient funds or overdrawn account fees – both for the writer of the check and the recipient of the check. It’s important to know how to avoid writing a bad check and how to mitigate the risk of depositing a bad check.

You can avoid writing a bad check by being aware of your bank account balance and leaving a safety buffer for emergencies. If you have written a check, but later realize that it will likely bounce, it’s important to contact the check holder immediately. Let them know before they deposit the check (and find out the hard way!) and make other arrangements to pay. This will save time and money for both of you.

You can avoid depositing a bad check by asking the check writer’s bank to verify funds before you deposit a check. Some banks will do this, but others will not. However, it never hurts to ask. You can also avoid depositing a bad check by refusing to accept checks as payment.

Postdated Checks

A postdated check is a check with a future date written upon issuance, as opposed to a current date. This happens because the check writer either does not presently have enough funds to issue the check (but anticipates having enough in the future) or because the check writer is paying in advance for services that have not been completed.

Postdating checks is not explicitly illegal. However, postdating checks also doesn’t carry any weight: in most cases, the check recipient can deposit the check at any time, and the bank can pay funds out of your account before the date on the check. Banks have different policies on how they handle postdated checks, and many charge a fee for the hassle of monitoring the account to prevent early payment.

Check Cashing

To cash a check, you need to bring it to a check cashing institution, such as your local South Suburban Currency Exchanges. We cash all types of checks including personal, business, payroll, government, insurance, and more. Find your nearest location for fast and easy service and to turn your check into cash today!