What Is a Certified Check?

A certified check is a type of check for which the issuing bank guarantees that there will be enough cash available in the holder's account when the recipient decides to use the check. A certified check also verifies that the account holder's signature on the check is genuine.

Situations that require certified checks often include those in which a recipient is unsure about the creditworthiness of the account holder, or in which the recipient does not want the check to bounce.

Key Takeaways

  • A certified check is a check for which the issuing bank guarantees the availability of cash in a holder's account.
  • Banks typically set aside the amount of money listed on the certified check in the holder's account.
  • Certified checks are used to reduce the risk of non-payment in case the writer of the check does not have sufficient funds in their account.
  • Downsides to using a certified check include depositors not being able to place a stop payment order on a certified check and fees charged for issuing a certified check.
  • Certified checks are most often used for payments involving large sums of money.

Understanding a Certified Check

Personal checks can come with a certain amount of risk. Because a check is not cash but instead a promise of payment, there is always the risk that when the recipient of the check goes to cash it, that it may bounce, meaning that the writer of the check does not have the money for payment.

In order to avoid the loss of money and ensure payment, many individuals or businesses will ask for a certified check, making certain they will receive the appropriate funds. A bank will verify the funds in the account and draft a check for that amount.

There are some downsides to using certified checks. For example, banks will usually charge a fee for certifying checks. In addition, a depositor usually cannot place a stop payment order on a certified check.

Certified checks are most commonly used for large sums of money, such as a down payment on the purchase of a house.

Certified Check vs. Cashier's Check

There are a variety of available checks in the banking world and there are multiple checks that can verify the funds in an account. While one example is a certified check, another commonly used check is a cashier's check.

A banking institution usually guarantees a cashier's check, specifically, a bank cashier signs the document, whereas a certified check is signed by the account holder and then verified by the bank.

A certified check does not draw funds right away from an account holder's account; the money stays in their account until the check is cashed. A cashier's check, on the other hand, immediately withdraws the funds from an account and is then held by the bank until the payee cashes the check. This is an additional step that makes a cashier's check more secure.

That being said, there is not a tremendous amount of difference between the two. Both are guaranteed forms of checks and will ensure payment to the check holder.

Besides checks, payment can be ensured through other means, such as wire transfers. A good or service will only be released or performed once the funds from a transfer hit the recipient's account.

Certified Checks and the History of Checks

Prior to certified checks, checks in several forms existed since ancient times. Many people believe a form of the check was used among the ancient Romans. While each culture employed its own separate system for checks, they all shared the underlying idea of substituting the check for currency.

In 1717, the Bank of England was the first organization to issue pre-printed checks. The oldest American check dates to the 1790s.

Modern checks, as we now know them, became popular in the 20th century. Check usage surged in the 1950s in particular as the check process became automated, as machines were able to sort and clear checks.

Credit and debit cards, along with other forms of electronic payment, have since replaced checks as the dominant means of paying for goods. In fact, checks are now relatively uncommon.