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How Checks Work and When to Use Them?

13 May 2024


In a world dominated by mobile apps to send money, checks seem like antiquated relics. Nonetheless, checks are still relevant and useful means of payment in some instances. Having an insight on how they operate and where to use them is an opportunity for you to venture through the financial space.
 

In this veil of all you need to learn about checks and in what circumstances they are the best fit payment option.
 

Demystifying Checks - A Look Behind the Scenes

A check, or a cheque as it is sometimes referred to, is a piece of paper that is a written order to your bank. It orders them to transfer a certain amount of money from your checking account to pay a specific payee.
 

The following are the major players involved in the transaction: 

 

A Drawer

This is the issuer who orders one’s bank to pay.

 

The Drawee

The bank that holds the drawer's checking account and is responsible for facilitating the payment.

 

The Payee

The person or company receiving the funds, as specified on the check.
 

The Check Clearing Process - A Journey of Verification

When you deposit a check, it travels through the banking system before the funds become available in your account. 
 

Here's a simplified overview of the journey of a check:

 

1. Deposit

The process check goes through to reach your account is explained in a much simpler manner: The check’s payee has multiple ways of making the deposit:

 

In Person

They can visit the bank’s local office and hand the teller the endorsed check.

 

Over the ATM

They can also use certain ATMs. The process requires the user to feed the ATM with the endorsed check through a designated slot.

 

With a Mobile Banking App

Some banks provide mobile apps that allow its users to snap pictures of the front and back of the endorsed check and practically submit it for deposit online.

 

2. The Deposit Slip

A document that indicates the checks being deposited and how much each is worth. It is filled out by the payee if they have a deposit envelope; otherwise, the bank teller will fill it out on their behalf. 

 

3. Bank-to-Bank Communication

Once the employee deposits the check to their bank, the check image and deposit slip information are electronically sent to their bank’s regional clearinghouse. 
 

A paper copy is also sent with the check behind it to the paying bank. Important note : Regional clearinghouses work as a bridge between your bank and the employee’s. 

 

4. Endorsement 

Make sure to endorse the check and add your signature on the back, which should appear somewhere above the words “For Deposit Only.” 

 

5. Verification

Your bank confirms that the check is real and checks on the paying bank .

 

6. Clearing

The check is either physically or electronically sent to the paying bank to ensure that there are enough funds on the account. 

 

7. Settlement 

Once the paying bank confirms the sufficient balance, the money is actually transferred to your bank, and the check is “cleared.” 

After the clearing process is done, money are available on the payee’s account.

 

8. Withdrawal 

The payee can then withdraw the money, send them using electronic transfer, or use them anyway he wants. 

 

9. Returned checks 

If your account has insufficient funds or the check has contained some mistakes for example, there was a wrong signature, or the name on the check was misspelled that caused the payment to be turned out due to some particular reason.

 

Factors Affecting Check Clearing Times

Many factors impact the time it takes to clear a check:

 

Check type

Personal checks can take longer to clear than cashier’s or government checks because the latter is pre-funded and verified through the issuing institution.

 

Bank Policies 

Each bank declares items in experiencing funds deposited as a stipulation. But the length periods vary by account time, banking background, and the value of the check deposited.

 

Deposit Method

Because of extra verification terminals, checks withdrawn in-person or through an ATM might clear slightly faster than a mobile check deposit.

 

Routine Numbers

Checks drawn on banks far away, or with varying routing numbers, might take longer to clear, peculiar to the longer verification procedure.
 

Personal checks should be removed within 1-3 business days, while cashier's and government checks might clear within 1 business day. 
 

However, it's always advisable to consult your bank's specific deposit hold times for the most accurate information.
 

When are Checks the Right Choice?

While online money transfers and digital payment methods are gaining ground, checks remain a viable option in certain situations.
 

While online money transfers and digital payment methods are gaining ground, checks remain a viable option in certain situations:

 

Bill Payments

Rents, utilities and most common subscriptions from frequently used services still can be paid by a check.

 

One-Time Payments

Charges can be a very convenient alternative for one time payments to your counterparts and different businesses that could benefit from online payment options.

 

Security Concerns

Checks will effectively help in the case of situations like, when you are not willing to reveal your bank account information online.

 

No Internet Access

The check system allows you to pay via checks without having Internet access or when you don't prefer online money transfers.

 

Sending Money as a Gift

Checks can be a traditional and secure way to send money as a gift. For instance, when a player gets rewarded through a check.

 

Security Deposits

Landlords, property dealers or other entities might request a cashier's check for security deposits due to their guaranteed nature.
 

The Future of Checks - Adapting to a Changing Landscape

Questions on checks remain still; however, with the spread of online money transfer services and digital wallets, they may just end up taking its place in the financial domain. These tools in the digital world ensure quicker transfer speeds, greater convenience and, perhaps, even cost reduction as compared to the traditional checks that are slow in transfer process.
 

Way Forward 

We Don’t Only Give You Advice, We're With You in Your Financial Decision-Making. Becoming conversant with checks and their usage helps you make wise financial decisions since you are fully aware of when to use the checks.
 

Although checks cannot be called the ultimate payment method, they are still a highly-reliable and secure tool in the bag of payment methods for some specific cases. 
 

With the Economic terrain constantly changing, money transfer standards might be on the horizon when they coexist with money transfer applications, which would allow the people to have a choice and thus, freedom.
 

FAQs

What information do I need to write on a check?

You'll need the payee's name, the amount (written out and numerical), the date, and your signature.
 

How long does it take for a check to clear?

Typically, it takes 1-3 business days for the check to clear and the payee to access the funds.
 

What are the advantages of using checks?

Checks are widely accepted, offer security features, and provide a physical record for budgeting.

 

What are the disadvantages of using checks?

There's a waiting period for checks to clear, they can be lost or stolen, and errors can cause delays.

 

When might using a check be a good idea?

Checks are suitable for regular payments, large transactions where a paper trail is desired, or sending money as a gift. Consider online money transfers for situations requiring faster access to funds.


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