Check

What Is a Check?

A check is a paper payment instrument that instructs a bank to pay money from the account of the person who signed it. The person who writes the check is the drawer, the bank that holds the funds is the drawee, and the person or business receiving the money is the payee. In the United Kingdom and some other countries, the same instrument is spelled "cheque." Checks are usually drawn on a checking account, which is a deposit account designed for frequent transactions.

How a Check Works

To write a check, the drawer fills in the date, the payee's name, and the amount in both numerals and words, then signs it. If the two amounts conflict, the written amount generally controls. The payee can deposit or cash the check in person, at an automated machine, or by photographing it with a bank's mobile app. The check then moves through check clearing, which transfers the funds from the drawer's bank to the payee's bank. Clearing takes time, so the funds are not always available right away.

Before paying, the drawee bank checks whether the account holds enough money to cover the check. If it does not, the check may be returned unpaid, which is commonly called a bounced check. Some accounts instead cover the shortfall through an overdraft arrangement, which has its own terms and costs.

Advantages and Disadvantages

• Checks create a written record of a payment and are still accepted by some businesses that do not take electronic payments.
• A drawer can ask the bank to stop payment on a check before it is cashed, though this usually involves a fee.
• Checks can be lost, stolen, or altered, and they often take longer to settle than an electronic funds transfer.

Why It Matters to Investors

Checks are far less common than they once were, but investors may still encounter them when receiving payments from companies or when moving money in and out of brokerage or bank accounts. Understanding how checks clear helps explain the timing shown on bank statements. Because a check is an order to pay rather than the payment itself, the money is not final until the check has cleared.