Takeaways
- Checks are payment instruments that draw funds from your checking account.
- Checks tell banks or credit unions to transfer funds to the check holder’s account.
- Checks contain the bank’s and payor’s routing and specific check numbers.
- Check types include personal, cashier, certified, e-check, and business.
- Checks are used to pay regular bills, make large purchases, secure down payments, and conduct everyday business transactions.
What Is a Check?
A check is a signed paper payment instrument that contains a payor, payee, and payment amount. It directs your bank to withdraw money from your checking account and deposit a specific amount into the check bearer’s bank account.
Checks are a commonly used form of payment between two parties:
- The payor is the person or entity that writes the check, and;
- The payee is the person receiving the check.
You are usually issued a paper checkbook when you first set up your online checking account. If you write checks often, you can order another checkbook or visit your local bank branch office to have checks printed.
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How a Check Works
A check is a paper slip that guarantees a payor will pay a payee a specified amount of money on or after a specific date. Banks provide printed checks to new and existing account holders to allow them to make payments to others when they do not have cash on hand.
Personal and business checks act as mini “IOU” slips. When you want to make a payment, you simply fill out all the necessary parts of the check to make it valid (more on that below). From there, the payee takes the check to their bank and cashes it. Funds from your checking account are then routed to the payee's account.
- 11.2 billion checks are written annually, according to a study from the Federal Reserve.[1]
Checks are used daily in the U.S. economy to transfer money between two parties. They are one of the most popular payment methods, whether you are making a donation or gift, paying a vendor for goods or services, or paying routine bills.
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10 Parts of a Check
All checks must contain essential information for the payment slip to be effective and appropriately deposited. Here are the ten parts to know:
1. Payor Information: The payor is the person or business writing the check. The upper left-hand side of the check will contain your name and address.
2. Check Number: Each check will have a unique check number on the top and bottom. This helps you and the bank keep track of check number sequencing. For example, check #101 was cashed successfully, but check #102 is still outstanding.
3. Check Date: The check date is on the upper right-hand side of the check. Checks cannot be cashed before the check date.
4. Payee Information: This area of the check has “Pay to the order of” and contains information on who you are paying. This is where you fill in the person, institution, or business you are transferring money.
5. Payment Amount: You can fill out the payment amount in two places. The first is the box to the right of the payee information where you write the dollar amount (e.g., $500.00). The second is the line below the payee’s information where you write out in words the amount to be paid (e.g., Five hundred dollars). These two amounts should match.
6. Bank Information: Below the payment amount line, the bank name and address are displayed as well.
7. Memo Line: While this section is optional to fill out, it can help you remember why you are paying someone. For example, you could write "Apartment Security Deposit" on a check to your landlord.
8. Signature: Your signature line is at the check's bottom right. You must sign and date the check to make it valid.
9. Bank Number: The bottom of the check will contain the bank’s routing number so the receiving financial institution can identify your bank with the banking system.
10. Routing Number: The bottom of the check will also contain your checking account’s routing number so the receiving financial institution can identify your specific account.
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5 Types of Checks
Millions of checks are cashed daily to facilitate payments between friends, family, and businesses. Here are five types of checks to know:
- Personal Checks: A personal check is a check you write to someone from your personal checking account. Your checks will contain your specific checking account information, and you are free to write as many checks as necessary.
Best for: Paying rent, utilities, or gifts
- Cashier’s Check: A cashier's check automatically deducts funds from your checking account before the bank prints it out. Because the check is already funded, payees don't risk receiving a check that will bounce because of insufficient funds. Cashier's check are ideal for guaranteed payments.
Best for: Down payments, legal settlements, or renovations
- Certified Check: A certified check is a guaranteed check with the bank's official stamp. The financial institution deposits money into a linked account to ensure the check will not bounce. Once a certified check is cashed, the money is pulled from the linked account.
Best for: Down payments, large payments
- eChecks: An eCheck is basically a paper check in digital form. Instead of writing the payee, amount, date, and signature on paper, you do this electronically via your bank. An eCheck pulls funds from your checking account but can speed up the processing time because it is cleared electronically.
Best for: Tax payments, regular online bills, or donations
- Business Checks: A business check operates like a personal check, except it pulls money from your entity's online business checking account. Whether your company is a C Corp, LLC, S Corp, or non-profit, most companies have checking accounts to help facilitate regular business payments and purchases.
Best for: Payroll, vendor payments, or large purchases
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How to Deposit a Check
- In Person: If you receive a check from a friend, family member, or business, you can take the check to your bank's local branch office. Deposit the check into your checking or savings account, and your bank or credit union will provide you with a deposit slip.
- Mobile Deposit: For online banks, you can deposit checks electronically via your bank's online app. Snap a picture of your check and follow your bank's instructions to deposit the check with your banking app.
Smart Summary
Checks are paper payment instruments that allow online checking account holders to pay friends, family, vendors, and businesses quickly. They are easy-to-use payment slips that enable payors to make large down payments, pay security deposits, and make everyday purchases when they don't have cash on hand.
Frequently Asked Questions
Postingdating a check means that you write a future date on the check. By doing this, the payee cannot deposit your check until that date. This could allow you to write a check and subsequently transfer funds to ensure you have sufficient funds for the check to cash.
A check “bounces” when your online checking account does not have sufficient funds to withdraw the requested amount. For example, if you only have $400 in your checking account but wrote a check for $600, your check will bounce unless you transfer more funds.
You could incur overdraft penalties or fees for insufficient funds depending on your bank. To avoid these penalties, you can set up your checking account to draw funds from your savings account.
(1) Federal Reserve. Federal Reserve Payment Study. Last Accessed January 12, 2025.
