When you step back and think about it, checks are pretty amazing. A small slip of paper with a few words, some funny-looking numbers and a signature can give you access to money in someone else's account, potentially located at a different type of financial institution in a different state or country. While cashing a check is a relatively simple process for you, there's a lot going on behind the scenes.
At the Teller
The Clearing House
Years ago, checks had to be sent to a big clearing house that physically matched up checks between banks for payment. This made check cashing a bit of a risk for banks, since there was a possibility the money wouldn't be there when it came time for the bank to collect on the check. Today, the data from a check you're cashing goes through an electronic clearing house or, in some cases, transfers through a direct connection between two banks, bypassing the clearing house. These clearing houses and connections let the bank see if the money is there before it pays you. If it is, you'll be given your funds.
- Consumer Finance Protection Board: Can I Cash a Check at any Bank or Credit Union?
- My Financial Wingman: Banking Basics 101: Check Endorsements
- Bankrate: What Happens When You Write a Check
- Chase Bank. “Deposit Account Agreement and Privacy Notice,” Page 16. Accessed March 2, 2020.
- Experian. “Check Cashing: Are the Fees Worth It.” Accessed March 2, 2020.
- Federal Direct Insurance Corporation. “FDIC Consumer News: Beware of Fake Checks.” Accessed March 2, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.