What are checks and how do they work?

Checks are  drafts, drawn on bank and can be used as payment, whether negotiable or not, they are handled for forward return or collection, this includes a traveler’s check and a substitute check. The check is taken against the funds deposited in the checking account of the owner. It is written on a bank, credit union, or savings institution.

A check is type of contract classified as a negotiable instrument. This tells a financial institution or a bank to pay out a specified amount stated in the instrument against a person’s bank account. Checks offer security and convenience because the drawer is hassle free. The account owner need not carry sums of cash and while the payee feels more secure and need not worry about possible theft.

The only insecurity with checks is the fear that the account of the drawer will have insufficient funds to cover the amount written on the check. This is referred to as Non-Sufficient Funds or NSF Checks; also referred to as bounced checks.  To correct this insecurity banks have developed Cashier’s Checks. These are guaranteed safe checks compared to the ordinary checks.  A cashier’s check pays immediately and is removed afterwards from the drawer’s account. 

Checks are usually personalized. They have the individual’s name, his/her address, name of the financial institution, with check number written on it. It’s advised to add phone number also. This assures payees so they feel very comfortable that your check will not bounce.