certified check

A type of check where the issuing bank guarantees the recipient of the check that there is enough cash available in the holder's account to be transfered when the check is used and also that the account holder's signature on the check is genuine. Certified checks are typically used in situations where the recipient is unsure about the creditworthiness of the account holder and doesn't want to the check to bounce.

Investopedia Says:
Since certified checks become the issuing bank's liability, banks will typically set the amount of money listed on the certified check aside in the holder's account so that there will always be an amount of money for the check. There are some downsides to using certified checks. For example, banks will usually charge a fee for certifying checks and that the depositor usually cannot place a stop payment order on a certified check.

Related Links:
It's critical to act fast. This article summarizes the key entities to contact for help. Identity Theft: What To Do If It Happens

Business or personal check stamped with the paying bank's certification that: (1) the maker's signature is genuine; and (2) there are sufficient funds in the account to cover the check. Once certified, a check becomes an obligation of a bank, and is paid out of bank funds. Banks charge a fee for certifying customer checks. Contrast with Cashier's Check.

A written order made by a depositor to a bank to pay a certain sum to the person designated — the payee — which is marked by the bank as "accepted" or "certified," thereby unconditionally promising that the bank will pay the order upon its presentation by the payee.

A certified check is considered the equivalent of cash since the bank, by its certification, guarantees it to be cashable. No bank is under a duty to its depositors or anyone else to certify checks since it involves the assumption of a new obligation for which it is primarily responsible. It is a commonplace practice, however, and there is usually a small fee for this service. A certified check is often required by a payee who does not want to rely only upon the credit of the drawer, the person who wrote the check. A sample of a check certification is shown below.

A payee who requires a drawer's check to be certified ensures his or her right to payment. Not only can the payee seek payment from the certified bank, but if for some reason the bank refuses to pay, the payee retains the right to enforce payment from the drawer. In this situation the bank is primarily liable while the drawer is secondarily liable.

Occasionally the payee or subsequent holder of the check — a person who has been legally given possession and the right to payment — will present the check to the drawer's bank for certification. Although the bank is obligated to cash the check, it need not certify the check because only it, not the drawer or any subsequent endorsers, would be liable for its payment. Some banks will certify a check in such instances only with the approval of the drawer.

If a bank refuses to pay a check that it has certified, its drawer or holder may sue the bank for its wrongful conduct, called dishonor. A certified check, a type of commercial paper or negotiable instrument, is governed by Article 3 of the Uniform Commercial Code.

A certified check or certified cheque is a form of check for which the bank verifies that sufficient funds exist in the account to cover the check, and so certifies, at the time the check is written. Those funds are then set aside in the bank's internal account until the check is cashed or returned by the payee. Thus, a certified check cannot "bounce", and, in this manner, its liquidity is similar to cash, absent failure of the bank.

In some countries, e.g. Germany, it is illegal for a regular bank to certify checks^[1]. This regulation is supposed to prevent certified checks from becoming a universal substitute for cash, which is considered the only legal tender. The Deutsche Bundesbank (Federal Bank) is the only financial institution authorized to issue certified checks.

The liquidity and certainty of payment of a certified cheque explains the fact that it is sometimes considered as an equivalent to cash, such as in the regulation of credit for casino gaming in Macau, where the law explicitly states that if a casino patron obtains casino chips and pays with a certified cheque, the transaction is not regarded as credit for gaming (see Law 5/2004, art. 2).

Banks such as U.S. Bancorp in the United States will still place a hold on certified checks on new accounts for 5 business days. The explanation given is that it is due to fraud and it is for the account holder's protection.

See also

• Cashier's check
• Certified Funds

References

1. ^ Art. 4 of the German Check Code (Scheckgesetz)

External links

• Definition at law.com

This economics or finance-related article is a stub. You can help Wikipedia by expanding it. v • d • e

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)