What is a Certified Bank Check?

One of the most important elements of successful business management is trust, especially in matters of money. When you need to be absolutely certain that a payment will be made on time, you may wish to consider using or asking your customer to use a certified check for payment.

History

Originally, banks dealt only with wealthy people. Wealth was simply defined, in coins or other tangible objects of value. (The origin of the court title of "chamberlain" was created to describe a highly trusted servant who slept in the king's bed-chamber and guarded the king's treasure with his life.) By the Middle Ages, exploration led to the expansion of trade, and wealth could not always be transported safely for long distances. Dangers ranged from Robin Hood to shipwreck and piracy, let alone the weight of assets. Early banks therefore developed paper or parchment letters of ability and intent to pay, along with banking networks that enabled traders to redeem their letters and pay what was owed.

Significance

The extension of financial trust through letters and networks led to trade and exploration that eventually spread worldwide. The work of the East Indies Company and Hudson Bay, development of the Suez and Panama canals, endless military campaigns, and creation of America's railroads all depended upon the effectiveness of these instruments. While we now assume the existence of a wide variety of kinds of credit, they did not always exist. A certified check was one of the early forms of now-ubiquitous credit and remains one of the most reliable.

Features

A certified bank check guarantees to a payee that, at the time the check is created, the payer has funds equal to the amount of the check available for payment. To provide a certified check, the bank requires that the payer be a depositor; a certified check can only be written by a bank at which you have an account. Some banks will provide a certified check on a new account--if, for example, you are buying a house in a new community--but will have regulations about new deposits clearing that must be followed.
Certified checks are often required by vendors for large purchases, such as a house- or car-down-payment. The greater the distance between seller and buyer, the higher the likelihood that a certified check will be required.

Benefits

The benefit of a certified check is essentially the establishment of the trust between strangers that has historically been part of banking. Paying for a large item or service by certified check saves time, travel, and concern. A payer using certified checks will be regarded as reliable and valuable, which is likely to be reflected in customer service.

Misconceptions

When doing business by certified check, it is important to recognize one limitation to a successful transaction: The bank issuing the check certifies that at the time the check was issued, the depositor had funds available for payment. The bank does not guarantee payment; that is the depositor's responsibility. It is still possible that the check will go unpaid, should the depositor use the money to pay for something else or stop payment on the check, either of which an unscrupulous payer might do.

Prevention/Solution

In any situation where you as payee suspect that your payer might not handle your transaction honestly, banks offer an alternative, which is a cashier's check. Although a banking professional would have a more solid explanation, the best way to understand the difference between a certified check and a cashier's check is thus: To obtain a cashier's check, basically, the depositor must "pay" the bank the full amount of the check. When you present the check to be cashed, the bank is then paying you, or forwarding the depositor's money to you. Between the time that the check is written and the time it is presented for payment, the money is definitely in the bank.