What is a 'Traveler's Check'
A traveler's check is a medium of exchange utilized as an alternative to hard currency. Travelers often used traveler's checks on vacation to foreign countries. In 1891, American Express first introduced the checks. Traveler's checks offer a safe way to take currency overseas. The issuing party, usually a bank, provides security against lost or stolen checks.
BREAKING DOWN 'Traveler's Check'
A traveler's check is similar to a check because it receives a unique check number or serial number. When a customer reports a check stolen or lost, the issuing agency cancels that check and provides the customer with a new one. Although banks issue the checks directly to customers, a separate entity manufactures them.
A traveler's check is a prepaid fixed amount that operates like cash that a purchaser can use to buy goods or services when traveling. A customer can exchange a traveler's check anywhere for cash. Major financial service financial institutions issue traveler's checks, and banks and credit unions sell them.
Some companies charge a 1 to 4% fee to issue traveler’s checks. Other banks offer the checks for free if a customer maintains a high minimum account balance. They are available in several fixed denominations in all major currencies, such as U.S. dollars, British pounds, Canadian dollars, the European euro and the Japanese yen. Most banks, hotels and retailers accept them as cash although some banks charge fees to cash them, and an increasing number of retailers no longer accept them.
How to Use Them
Traveler's checks are easy to use and are a good option for customers who do not want to use a credit card or check card or carry large amounts of cash when traveling. Traveler’s checks do not link to a customer's bank account or line of credit and do not provide personally identifiable information, which eliminates the risk of identity theft. Customers can use them as a money management tool to help with budgeting, tracking and controlling travel expenses. They do not have an expiration date.
Traveler’s checks are a handy alternative because not all credit card and debit cards are accepted in foreign countries. They are also a good option when visiting rural areas or smaller cities and islands that do not have a bank or when traveling to a hostile area. They are a safeguard in countries with fluctuating exchange rates because customers can purchase them in different currencies, which helps avoid fluctuating rates.
On Jan. 1, 1772, the London Credit Exchange Company was the first business to issue traveler's checks. In 1874, Thomas Cook issued circular notes that worked like traveler's checks. James C. Fargo, president of the American Express Company, was a wealthy well-known American; however, in 1890, during a trip to Europe, he was unable to get checks cashed. An American Express Company employee, Marcellus F. Berry believed the solution for taking money overseas required a check with the signature of the bearer. On July 7, 1891, Berry received copyrights for the instrument he termed the traveler’s check.