Most banks offer both bank checks and certified checks as guaranteed forms of payments. The differences between the two are subtle, the main difference relating to who signs the check and who is obligated to pay. When faced with these check options, a customer needs to be equipped with the knowledge of which payment method to use.
A creditor may be unsure as to the creditworthiness of a payee. The recipient of funds may not be willing to take the risk of accepting a personal check that could bounce. In this situation, the creditor may request a more secure form of payment. Certified checks and bank checks are often used in these circumstances.
A certified check is a written acknowledgment by a bank that its customer's signature on that check is genuine and sufficient funds are available in that customer's account to honor the check when it is properly presented for payment.
Under the United States Uniform Commercial Code, which was established to simplify, clarify and modernize commercial transactions, both the bank and the customer may be held liable for the payment. If payment is not honored on a valid check, a lawsuit may be brought against the bank and the customer. This is specifically called out in UCC Sec. 3409 (d).
A bank has the right to impose restrictions when certifying a check. Such restrictions may include items like, "void after 90 days." A bank may also cancel its certification of a check (provided it notifies the payee) if it has been certified in error or obtained by fraud.
One problem with certified checks is the potential for forgery. A bank is not obligated to pay on a forged certification.
A bank check (sometimes referred to as a cashier's check) is a draft that is drawn on the bank by itself. The bank agrees to honor a bank check when properly presented for payment. The bank signs the check, and is liable for payment. In theory, the bank has set aside funds from the customer's account to reimburse itself when the check is presented for payment.
If either type of check is lost or stolen, the bank may require a bond or other security before reissuing the check. The bank may also at its discretion refuse to honor either type of check if fraud is suspected or if there have been material alterations performed on the check. Otherwise, the bank must pay the check when it is presented for payment in its original and unaltered form.
The bank may also at its discretion honor a request by the customer to stop payment on either type of check. However, the bank does this at its own risk and could still potentially be liable for a bank check. Because of this, the bank will typically charge a nominal fee to process this type of request.
Bank checks are replacing certified checks as the preferred payment method. Fewer opportunities for forgery and disputes occur using a bank check. Also, bank checks tend to carry a smaller processing fee.
As an alternative, if a customer has the funds for a certified or bank check, he would equally have the funds available for a wire transfer.
Wire transferring is another method of payment where no check needs to be produced. The funds are typically available immediately for the payee, and the fee is only slightly higher than those on a cashier or bank check.