What Is a Check Order and When Should You Use One?
Unpack the security and reliability of check orders. Learn how this financial instrument provides guaranteed funds and when it's your best payment option.
A check order serves as a secure method of payment that offers a higher level of reliability than a personal check. It is a financial instrument where the funds are guaranteed by a financial institution, such as a bank or credit union.
What is a Check Order
A check order is a payment instrument issued and guaranteed by a financial institution. Unlike a personal check, the money for a check order is typically withdrawn from the customer’s account and secured by the issuing institution at the time of purchase. This pre-payment and institutional backing provide assurance to the recipient that the funds are legitimate and will not bounce.
This type of instrument is sometimes referred to as a cashier’s check, indicating its origin from the bank’s official funds rather than an individual’s account. It essentially shifts the risk of insufficient funds from the payer to the issuing financial institution.
Check Orders Compared to Other Payment Types
A personal check, for instance, draws directly from an individual’s bank account and relies on the account holder having sufficient funds at the time of cashing. If there are insufficient funds, a personal check can “bounce,” leading to fees for both the issuer and the recipient. Personal checks also display sensitive information like account numbers, which can be a privacy concern.
Money orders are another prepaid option, often used for smaller amounts, typically capped at $1,000. These can be purchased at various locations, including post offices, grocery stores, and some banks, with fees generally ranging from $1 to $5. While money orders are secure because they are prepaid, the guarantee often comes from the selling agent, not necessarily a bank, and their lower limits restrict their use for larger transactions.
Check orders are suitable for larger transactions, often without an upper limit or with very high limits, such as $250,000 per check. They are obtained directly from banks or credit unions and typically incur a higher fee, ranging from $5 to $15 per check.
Situations for Using a Check Order
Check orders are particularly useful in situations where the recipient requires guaranteed funds. One common scenario involves making large purchases from unfamiliar sellers, such as buying a vehicle from a private party or an item through an online marketplace. The guaranteed nature of the funds provides assurance to the seller, reducing the risk of payment issues.
Another practical application is for significant financial obligations like rent or security deposits, especially when the landlord or property management company does not accept cash or personal checks. Many landlords specifically request guaranteed funds to ensure timely and reliable payments. Check orders can also be appropriate when sending money to individuals who may not have a bank account for direct deposit or when a personal check is not considered reliable. The clear paper trail provided by a check order is beneficial for record-keeping purposes for both the payer and payee.
How to Obtain and Use a Check Order
Obtaining a check order typically requires a visit to a bank or credit union where you hold an account. You will need to provide the exact amount of the check, the full legal name of the payee (the person or entity receiving the funds), and your identification. Most financial institutions charge a fee for issuing a check order, which can vary but commonly falls within the $5 to $15 range. Some banks may waive this fee for certain account types or preferred customers.
Once you receive the check order, it is important to handle it carefully. You should accurately fill in the date, the numerical amount, and the written amount, ensuring these match precisely. The “Pay to the Order of” line must clearly state the payee’s name, as this ensures only the designated recipient can cash or deposit it. It is advisable to keep a record of the check order number for your files.
If a check order is lost or stolen, immediate action is necessary. You should contact the issuing financial institution without delay to report the loss and request a stop payment. While stopping payment on a check order can be more complex than on a personal check, acting quickly improves the chances of preventing fraudulent activity. Financial institutions typically have procedures for investigating and potentially reissuing lost or stolen check orders, though this process may involve fees and take some time, possibly up to 90 days.