How Do Bank Checks Work?

Basics

There are three major types of bank checks--business, personal and cashier's. A business check is written from a company, often printed, such as in the case of payroll. Business checks can also be handwritten to cover a bill payment or to buy merchandise. A personal check comes from an individual, and although it can be computer-printed, it's often handwritten to pay a bill or to purchase goods. A cashier's check comes directly from a bank. Whenever a check is issued, the person handling it is promising that funds exist to cover the check. The check is basically a blueprint for your bank to collect money from the check writer's bank account or for the check recipient's bank to take money from your bank account.

Writing Checks

Writing checks, especially for personal and business purchases, is becoming less popular as time goes on. Whenever someone accepts a check, he takes a risk that the check is stolen, fake or that there's not enough money in the account to cover it. Until recent years, a cashier's check was considered as good as a postal money order or cash. Unfortunately, unscrupulous people have made a living out of counterfeiting checks.

Depositing Checks

If a check is returned, or bounces, the person who was expecting the money will not receive her funds. If she already spent the money, which could happen in the event of a cashier's check, she is legally responsible to reimburse her bank or to face credit and possible police consequences of her own. Most banks hold even cashier's checks for at least seven business days to ensure the checks don't get rejected for payment. Because of such realities, more and more businesses and people are electing to take credit or debit cards, cash or postal money orders only.

Playing the Float

"Playing the float," which is when someone writes a personal check in anticipation of their upcoming payday, has become less possible. Most checks clear instantly or within a day due to increased technology. Writing a check at the grocery store on a Tuesday for a paycheck that will be issued Friday could very well backfire, even before the check writer gets home with her goods.

Legal Consequences

Counterfeiting checks is a federal crime with stiff financial and incarceration penalties for offenders. Writing bad checks is considered a crime in every state, and jail time is possible if the check writer doesn't make good on his bounced check quickly. People and businesses can also be successfully sued for damages for failure to honor a written check.