Safety and Cashier’s Checks
Traditionally cashier’s checks have been among the safest checks to accept. This is because the promise to pay is made by the bank issuing the check – not the person who uses the check. They are sometimes called bank drafts.
Let’s contrast a cashier’s check with a personal check. When you write a personal check, you’re supposed to have available funds in your account to cover the check. However, you may know that the payee won’t get the check to the bank for a few days, and that processing will take another few days. Therefore, your account won’t be debited for several business days after you write the check. If you don’t have the funds available today, you can always hope that they’ll clear before the check is presented to your bank for payment (so you write the check anyway). This practice is called floating checks.
Unlike personal checks, cashier’s checks debit your account when they are issued. This means, of course, that you can’t get a cashier’s check unless you actually have available funds in the account. Once your account is debited, the bank is responsible for paying the payee.
Now, if you’re a merchant who accepts checks from customers, which would you rather take – a cashier’s check or a personal check? Of course, your odds of being paid are better with a legitimate cashier’s check.
Unfortunately, not all cashier's checks are legitimate. Fakes often show up in scams.
Typical Uses for Cashier’s Checks
Because of their relative safety, cashier’s checks are often used in infrequent transactions where the customer and merchant don’t know each other. Personal checks aren’t acceptable to the seller because if the customer’s check bounces, it would be a significant financial challenge.
Of course you can use your personal checks at a lot of places where they don’t know you. However, I’ll bet that these are transactions that are relatively insignificant to the seller. If your $38 check to the grocery store bounces, they’ll be upset – but they won’t go broke. Making a down payment on a home is a different story.
Cashier’s checks are also used in transactions where the money needs to settle quickly. In a real estate transaction, nobody wants to wait for processing on a personal check – again it’s a significant asset being sold. Likewise, brokerage firms may require settled funds for certain transactions, and cashier’s checks can be used here also.
Money orders are used in a similar way. Vendors may require that payment is made with a money order while rejecting any personal checks. However, money orders aren't considered to be as safe as cashier's checks.
How to Get Cashier’s Checks
Getting a cashier’s check is easy. Just go to the bank and ask for one (bring your ID with you). They will debit your account in the amount of the check and print it. You may have to pay a small fee for the service, and you usually have to have an existing account at the bank.