Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
You’re ready to buy a home. Or maybe you want to purchase a car. Both of these transactions require a large sum of money. And often, you’ll have to make your payment with a cashier’s check instead of a traditional personal check.
Why is this? And what’s the difference between a cashier’s check and a personal check?
It all comes down to risk. Simply put, a cashier’s check comes with less risk. That’s why when you get to the closing table when buying a home, your title company will request that you bring a cashier’s check and not a personal check. The same thing may happen with any big transaction you make.
What is a cashier's check?
The biggest difference between a cashier's check and a traditional check is that the funds for a cashier's check are guaranteed by the bank or financial institution issuing it.
When you pay for an item with a personal check, sellers hope that you have enough in your bank account to cover the full face value of your check. Say you write a check for $500 but you only have $300 in your checking account. Your check will bounce if the sellers try to cash it before you deposit additional money in your account.
This can't happen with a cashier's check. When you take out a cashier's check, your bank first withdraws the funds from your checking account and deposits them to the bank's own account. The money stays there until the seller cashes the check. Thanks to this safeguard, the funds to back up a cashier's check will always be available.
Because of this, sellers have more trust in cashier's checks, and will often request them for large financial transactions.
Where to get a cashier’s check
Getting a cashier’s check is simple, as long as you have an account at a bank. First, you’ll need to bring identification to a teller or customer service representative at the bank. You’ll then tell this person to make out your cashier’s check to a specific amount. You’ll also stipulate the name of the payee, whether that’s an individual’s name or the name of a business.
The teller or customer service rep will check to make sure you have enough funds to cover the check. If you do, the bank representative will hand over a completed check, one that this bank official has signed.
But what if you do your banking with an online bank that doesn’t have any physical branches? Your online bank probably offers its own type of check that is backed by the financial institution, an alternative that acts much like a cashier’s check. For instance, online credit union Alliant offers what it calls an Official Credit Union Check, which customers can apply for online or by phone. Alliant will withdraw funds from their customers’ accounts to cover the balance of these checks and then send them by mail.
How much is a cashier’s check?
Cashier’s checks aren’t free, with banks charging a varying range of fees for this service. For instance, Ascentra Credit Union in Bettendorf, Iowa, charges customers $2 for a cashier’s check.
Interra Credit Union in Goshen, Ind., charges $1 for cashier’s checks, while Philadelphia’s American Heritage Credit Union charges $2.
Larger banks tend to charge more for this service. Wells Fargo, for instance, charges $10 for cashier’s checks, while Fifth Third Bank charges $4.
A benefit of a cashier’s check is that you can make it out in any amount. Banks don’t set limits. What does limit your cashier’s check is how much money you have in your accounts with your bank. You can’t request a cashier’s check for $5,000 if you only have $4,000 in your account.
How long is a cashier’s check good for?
Cashier's checks don't come with expiration dates. However, if a cashier's check isn't cashed within a certain amount of time — a period that varies depending on where you live — it will be considered unclaimed property by your state.
The bank that issues your cashier's check is required to report annually to your state's comptroller's office if there has been no activity on the check within a certain number of years.
For instance, in California and Vermont, cashier's checks are considered unclaimed property if they are not cashed within three years. In North Carolina, cashier’s checks are considered abandoned if they remain uncashed for seven years.
If a cashier’s check isn’t cashed during this time, the bank issuing it is required to deliver it to the state’s comptroller’s office.
Can a cashier’s check bounce?
Because your bank or financial institution will first withdraw enough funds from your checking account before writing a cashier’s check, it can’t bounce. The funds that are taken out of your account are deposited in your bank’s account and remain frozen there until the payee cashes the check.
How do you cancel a cashier’s check?
If a cashier’s check is lost or stolen, there are steps you can take to possibly recover your funds. Unfortunately, you cannot stop payment on or cancel a cashier’s check.
As soon as you realize your cashier’s check has been lost or stolen, you need to file a declaration of loss with the bank that issued the check. Ask the bank for this form and fill it out, but keep in mind that this is a legally binding document made under penalty of perjury that asserts you do not possess the check and you do not know where it is.
After you file the declaration, you must wait the longer of 90 days from when you filed or 90 days from when the check was issued, depending on the bank. If the check has not been cashed within the waiting period, the bank will release the funds back to you.
During the 90 day period, the bank could still cash the check for someone with fake documents claiming to be the recipient. But if you have filed a declaration of loss, they will be watching for scammers.
Is a cashier’s check safe?
Cashier’s checks are considered less of a risk than are personal checks. Again, that’s because the funds behind them are backed by a financial institution or bank.
That doesn’t mean, though, that cashier’s checks can’t be used for financial scams. Most scams involving cashier’s checks rely on fraudulent versions.
The Federal Trade Commission outlines a common scheme on its website: You might receive a letter saying that you've won another country's lottery. The letter might even come with what looks like a legitimate cashier's check to cover taxes and fees.
To get your winnings, you must first deposit the check and then wire the money necessary to cover those taxes and fees. Then the country behind the lottery will send you your prize money.
The problem? As the Federal Trade Commission says, with this scam, the cashier's check is a fake. The scammer is counting on you not realizing this and your bank not catching the fake check until after you've wired your own money.
A fake cashier's check can trick you, too, if you sell goods online. A buyer might send you a cashier's check. You then ship your product to this buyer, only to discover that the cashier's check is fake.
How can you avoid these scams? Usually, it comes down to common sense: Don’t believe it when someone you don’t know tells you you’ve won a substantial sum of money. And never send money or goods to someone you don’t know until that cashier’s check can be proven legitimate by your bank.
Cashier’s checks vs. alternatives
There are alternatives to cashier’s checks. They each come with their own pros and cons.
Cashier’s checks vs. money orders: While you must purchase cashier's checks from banks or credit unions, you can buy money orders from a wider range of sources. Banks and credit unions sell them, of course, but you can also find them at your local post office, grocery stores and pharmacies. Want to buy a money order at your local Walmart? You can do that.
Money orders also come with limits. For instance, the biggest money order you can request from the U.S. Postal Service is $1,000.
Like cashier's checks, money orders come with a fee. The U.S. Postal Service charges $1.20 for money orders up to $500 and $1.65 for money orders ranging from $500.01 to $1,000. You pay for your money order up front, often with cash or a debit card.
Cashier’s checks vs. certified checks: A certified check is more like a personal check than a cashier’s check. A certified check is backed directly by the funds in your personal checking account. However, unlike a personal check, your bank certifies that your signature is genuine and your account had enough funds to cover the certified check at the time it was written.
That doesn’t mean, though, that a certified check can’t bounce. If someone cashes a certified check after the person writing the check withdraws money from his or her checking account, there might not be enough funds available at that time to cover the face value.
A certified check, then, offers more protection than a personal check does, but not as much as cashier’s check.