A cashier's check is a check written by a financial institution on its own funds. A representative of the financial institution then signs it and makes it payable to a third party. A customer who purchases a cashier's check pays for the full face value of the check and usually also pays a small premium for the service. The funds of the issuer — usually a bank — secure these checks, which include the name of a payee (the entity to which the check is payable), and the name of the remitter (the entity paying for the check).
An individual can use a cashier's check instead of a personal check to guarantee funds are available for payment. A cashier's check is secured because the individual must first deposit the amount of the check into the issuing institution's own account. The person or entity to whom the check is made out is guaranteed to receive the money when cashing the check.
The bank does not guarantee traditional checks. If the entity who writes the check does not have ample funds in his account to cover the draft, the bank can return the check. As a result, the payee receives no funds from the bad check. Cashier's checks remove this element of risk.
A certified check is a personal check signed by both the account holder and the bank. Cashier's checks differ from certified checks in that the funds owing on a cashier's check come from the issuer's account, while the funds owing on a certified check come from the remitter's account. The bank guarantees a certified check and may put a hold on some of the funds in the remitter's account, but the bank doesn't move the funds from the remitter's account to the bank's own reserves.
Although cashier's checks are very low-risk, thieves have developed a number of scams centered around them. In one scam, a buyer contacts someone who is selling something and offers to buy it with a phony cashier's check written for a higher amount than the sale price. He asks the seller to wire the difference to another party. The buyer claims he needs to make two transactions but only has one cashier's check, or he makes up another excuse. After the seller wires the money, he realizes the cashier's check is fraudulent when his bank notifies him of this fact days or weeks later.
In another popular scam, the victim receives a letter stating he has been selected to work as a mystery shopper. The letter contains a cashier's check, and it instructs the victim to use part of the check to buy merchandise during the mystery shopping excursions, wire part of the check to a third party and keep the remainder as pay. To be successful, the scam relies on the victim wiring the funds before discovering the cashier's check is a fake.