What is a 'Check'

A check is a written, dated, and signed instrument that contains an unconditional order from the drawer that directs a bank to pay a definite sum of money to a payee. The money is drawn from a banking account, also known as a checking account.

BREAKING DOWN 'Check'

In legal terms, a check is a bill of exchange, or a document, guaranteeing a certain amount of money, where the drawee is a bank. The use of checks allows two or more parties to make a monetary transaction without actually exchanging currency; rather, the amount for which the check is written is a substitute for physical currency of the same amount.

When someone writes a check for an amount larger than the amount held in his or her checking account, the check might bounce, meaning the check cannot be processed and often incurs a penalty fee to the drawer.

Modern substitutes for checks include debit and credit cards, wire transfers, and Internet banking.

(Note: Check is spelled as "cheque" in some parts of the world.)

Components of Checks

While not all checks look alike, they generally share the same key parts. The name and contact information of the drawer, or the person writing the check, can be found in the top corner, and the name of the bank that holds the drawer's account appears on the check. The center of the check features a line to specify the payee, or the recipient of the money, and the amount to pay. The check must be signed by the drawer to be considered valid.

Types of Checks

Checks can be used for several different purposes. One example is a certified check, which pre-verifies that the drawer's account has enough funds to honor the amount of the check. In other words, this check is guaranteed not to bounce.

A cashier's check is guaranteed by the banking institution and signed by a bank cashier, which means the bank is responsible for the funds. This type of check is often required in large transactions, such as buying a car or house. Another example is a payroll check, or paycheck, which an employer issues to compensate an employee for his or her work. In more recent years, physical paychecks have given way to direct deposit systems and other forms of electronic transfer.

History of Checks

Checks have been in existence in some form or another since ancient times. Many people believe a form of check was used among the ancient Romans. While each culture to adopt a form of checks had its own, separate system, they all shared the basic idea of substituting the check for physical 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 know them today became popular in the 20th century. Check usage surged in the 1950s as the check process became automated, and machines were able to sort and clear checks. Check cards, first created in the 1960s, were the precursors to today's debit cards. Credit and debit cards and other forms of electronic payment have since overshadowed checks as the dominant means of paying for goods. In fact, checks are now quite uncommon.

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