Check: What It Is, How Bank Checks Work, and How To Write One

What Is a Check?

A check is a written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer. The person or entity writing the check is known as the payor or drawer, while the person to whom the check is written is the payee. The drawee, on the other hand, is the bank on which the check is drawn.

Checks may be cashed or deposited. When the payee presents a check to a bank or other financial institution to negotiate, the funds are drawn from the payor’s bank account. It is another way to instruct the bank to transfer funds from the payor’s account to the payee or the payee’s account. Checks are generally written against a checking account, but they can also be used to negotiate funds from a savings or other type of account.

In some parts of the world, such as Canada and England, the spelling used is “cheque.”

Key Takeaways

  • A check is a written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer. 
  • It is another way to instruct a bank to transfer funds from the payor’s account to the payee or that person's account. 
  • Check features include the date, the payee line, the amount of the check, the payor’s endorsement, and a memo line.
  • Types of checks include certified checks, cashier’s checks, and payroll checks, also called paychecks.

How Checks Work

A check is a bill of exchange or document that guarantees a certain amount of money. It is printed for the drawing bank to give to an account holder—the payor—to use. The payor writes the check and presents it to the payee, who then takes it to their bank or other financial institution to negotiate for cash or to deposit into an account.

The use of checks allows two or more parties to make a monetary transaction without the need of actually exchanging physical currency. Instead, the amount for which the check is written is a substitute for physical currency of the same amount.

Checks can be used to make bill payments, as gifts, or to transfer sums between two people or entities. They are generally seen as a more secure way of transferring money than cash, especially when there are large sums involved. If a check is lost or stolen, a third party is not able to cash it, as the payee is the only one who can negotiate the check. Modern substitutes for checks include debit and credit cards, wire transfers, and internet banking.

The use of checks cuts out the need for one party to transfer a large sum of physical cash to another party.

History of Checks

Checks have been in existence in one form or another since ancient times. Many people believe a type of check was used among the ancient Romans. While each culture that adopted a form of check had its own 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 preprinted 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 most goods and services. Checks are now somewhat uncommon but still used among the general population.

Check Features

While not all checks look alike, they generally share the same key parts. The name and contact information of the person writing the check is located at the top left-hand side. The name of the bank that holds the drawer’s account appears on the check as well.

There are a number of lines that need to be filled in by the payor:

  • The date is written on the line on the top right-hand corner of the check.
  • The payee’s name goes on the first line in the center of the check. This is indicated by the phrase "Pay to the Order Of."
  • The amount of the check in a dollar figure is filled out in the box next to the payee’s name.
  • The amount written out in words goes on the line underneath the payee’s name.
  • The payor signs the check on the line on the bottom right hand corner of the check. The check must be signed to be considered valid.

There is also a memo line on the bottom left hand corner of the check underneath the drawing bank’s information. The payor may use it to fill in any pertinent information, such as a reference number, an account number, or any other reason for writing the check.

A series of coded numbers are found along the bottom edge of the check, directly underneath the memo line and the payor’s signature line. These numbers represent the bank’s routing number, the payor’s account number, and the check number. In certain countries, such as Canada, the routing number is replaced with an institution number—which represents the bank’s identifying code—and the transit or branch number where the account is held.

Image by Sabrina Jiang © Investopedia 2020

The back of the check has an endorsement line for the payee’s signature when the check is negotiated. The receiving bank stamps the back with a deposit stamp at the time it is negotiated, after which it goes for clearing. Once the drawing bank receives the check, it is stamped again and filed. In some cases the check is sent back to the payor if they request it.

Types of Checks

Checks can be used for several different purposes.

Certified check

One example is a certified check, which verifies that the drawer’s account has enough funds to honor the amount of the check. In other words, the check is guaranteed not to bounce. To certify a check, it must be presented at the bank on which it is drawn, at which time the bank will ascertain its authenticity with the payor.

Cashier's check

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.

Payroll check

Another example is a payroll check, or paycheck, which an employer issues to compensate an employee for their work. In recent years physical paychecks have given way to direct deposit systems and other forms of electronic transfer.

Bounced Checks

When someone writes a check for an amount larger than what is held in their checking account, the check cannot be negotiated. This is referred to as a “bounced check.” The check bounces because it cannot be processed, as there are insufficient or non-sufficient funds (NSF) in the account (the two terms are interchangeable). A bounced check usually incurs a penalty fee to the payor. In some cases the payee is also charged a fee.

Article Sources
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  1. Federal Reserve Bank of New York. "Historical Echoes: Cash or Credit? Payments and Finance in Ancient Rome." Accessed Aug. 10, 2021.

  2. Cheque and Credit Clearing Company. "Cheque Dates Through the Ages." Accessed Aug. 10, 2021.

  3. Rare Book Buyer. "Newly Discovered Oldest Surviving American Checkbook." Accessed Aug. 10, 2021.

  4. Federal Reserve Bank of Atlanta. "Economic Review: The Evolution of the Check as a Means of Payment: A Historical Survey," Pages 19-20. Accessed Aug. 10, 2021.

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