Checks and balances

[pne]

A question for the American readers of my journal: How do cheques/checks work in the States? (I see HowStuffWorks has an article about this, but it's fairly short.)

From what I hear, cheques are a very frequent method of payment over there, for paying for groceries, paying your credit card bill, paying authors ("The Czech's in the male!"), and so on. But in German, I'm not used to using cheques much; I think they've become even rarer recently now that eurocheques (with a guaranteed balance) don't exist any more.

I would say that most people, if they don't pay cash, use ec cards in shops and direct money transfers (either direct debit or a real transfer) for other things, e.g. ordering things via mail, paying rent, or the like.

Do American checks have to be written out on special forms issued by the bank? Or are there "neutral" forms you can use regardless of which bank you choose?

When you write out a check, what happens to it? I gather that the person receiving it deposits it with his bank, then the piece of paper gets sent to your bank, your bank pays theirs somehow, and you get back the check?

When you receive a check from someone else and deposit it, is your bank account credited with that amount immediately? Or do you have to wait? For how long? Does the length of time depend on whether you're using the same bank as the issuer?

When you deposit a check, do you get cash? Or do you have to deposit it in an account? Or can you do either? Are there different kinds of check for each? (I know that in Germany, there are "Verrechnungsschecks" which can only be deposited, not exchanged for cash, but mostly people turn an ordinary cheque into a Verrechnungsscheck by drawing two diagonal lines across the top left corner and, optionally, writing "Nur zur Verrechnung". Apparently, those are safer especially if they get stolen, because you can tell where the money went since there's a name behind the account.)

I'm especially curious about the "getting it back" part, since I've never heard of that in Germany; I think I'd simply expect to see an amount deducted from my next bank statement. Is the check crossed out or cancelled somehow when you get it back? Can you tell who deposited it, in which bank, or on what date? Can you tell whether a check was never cashed? Does the check get sent to you by postal mail? With your bank statement or separately?

What does "balancing your checkbook" mean? Does it refer to taking the cancelled checks you got sent bank and cross-referencing with the deductions on your bank statement? Or do you keep track of issued checks on a form the bank provides you and you tick them off when the check has been cashed? Or what?

Comments

Part I

[asciident]

Let's see how coherent and factual I can be at 5 AM when I should be in bed. ;)

From what I hear, cheques are a very frequent method of payment over there, for paying for groceries, paying your credit card bill, paying authors ("The Czech's in the male!"), and so on.

Yeah, they're pretty common, and used for all that and more. However, using debit cards is becoming more and more prevalent. Karl and I pay our rent by debit. BTW, debit cards work mostly like credit cards, but they take the money directly out of your checking account electronically -- I don't know if it's different anywhere else.

I would say that most people, if they don't pay cash, use ec cards in shops and direct money transfers (either direct debit or a real transfer) for other things, e.g. ordering things via mail, paying rent, or the like.

I don't have statistics, but from my general observation most people pay with (aside from cash) debit cards, credit cards, and checks. Most things can be purchased via the first two these days. (I prefer the first, financially speaking, as it accrues no interest to be paid and is immediately withdrawn from your account.)

Do American checks have to be written out on special forms issued by the bank? Or are there "neutral" forms you can use regardless of which bank you choose?

All checks look essentially the same, in terms of form. An example is here: http://www.armsco.com/check.jpg

They don't have to be issued by the bank -- you can order "designer" checks with pretty colors (another example: http://www.greatpyramid.org/aip/check.jpg), but you do have to give whatever company/bank you order from some details so the checks can be printed with their routing and account numbers (see the first example).

When you write out a check, what happens to it? I gather that the person receiving it deposits it with his bank, then the piece of paper gets sent to your bank, your bank pays theirs somehow, and you get back the check?

The payer write the check and give it to the payee. They deposit it with their bank, and their account is (in most cases) credited with the money. The payee's bank sends the the check to the federal bank indicated in the routing number. The federal bank sends the check to the payer's bank, who upon receipt and verification of available funds from the payer's account, electronically transfers the money to the payee's bank (who has as I said already credited the payee's account with the money). The payer's bank then marks the check as being "canceled" and sends it (usually in a lump of canceled checks once per month or once per quarter or whatever) back to the payer for record-keeping.

When you receive a check from someone else and deposit it, is your bank account credited with that amount immediately? Or do you have to wait? For how long? Does the length of time depend on whether you're using the same bank as the issuer?

Usually -- it depends on how you deposit it (in person or at an ATM) and the bank policies. It may be a bank's policy to wait for the check to go through clearing (described above).

When you deposit a check, do you get cash? Or do you have to deposit it in an account? Or can you do either?

Depends -- some banks won't cash a check if you don't have an account with them; or they will, but they'll charge you a fee. If you have an account, you can choose to deposit the entire amount, or ask for cash back on it.

Part 2

[asciident]

Are there different kinds of check for each? (I know that in Germany, there are "Verrechnungsschecks" which can only be deposited, not exchanged for cash, but mostly people turn an ordinary cheque into a Verrechnungsscheck by drawing two diagonal lines across the top left corner and, optionally, writing "Nur zur Verrechnung". Apparently, those are safer especially if they get stolen, because you can tell where the money went since there's a name behind the account.)

This sounds like a "traveler's check", which are safer for travelling because you don't have to carry cash (and lots of restaurants/stores/whatever won't take out-of-state checks or won't take personal checks at all). With traveler's checks, you can report them as stolen to the issuing bank and have your money returned.

Also, there are cashier's checks, which are issued from the bank, & are guaranteed (by the bank -- insurance to the payee that the money is there, and the check won't "bounce").

I'm especially curious about the "getting it back" part, since I've never heard of that in Germany; I think I'd simply expect to see an amount deducted from my next bank statement. Is the check crossed out or canceled somehow when you get it back? Can you tell who deposited it, in which bank, or on what date? Can you tell whether a check was never cashed? Does the check get sent to you by postal mail? With your bank statement or separately?

You can put a stop payment on a check and prevent it from being cashed successfully. When the check is cashed and goes through clearing, it's canceled by your bank and sent back to you -- usually it has a stamp on it (plus the endorsement of the payee on the back) to indicate the details. canceled checks may be sent by themselves or with a monthly statement. This again depends on the policies of the bank.

What does "balancing your checkbook" mean? Does it refer to taking the canceled checks you got sent bank and cross-referencing with the deductions on your bank statement? Or do you keep track of issued checks on a form the bank provides you and you tick them off when the check has been cashed? Or what?

A truly balanced checkbook is used for both purposes. Because I don't use checks (I specifically asked that they not be issued to me), I do this all my "checking up" online and via monthly statements mailed to me.

[supersat.livejournal.com]

Checks can technically be in any form, but most banks charge a rather large handling fee for checks not in the standard Federal Reserve format, and many banks won't accept non-standard checks paid by another bank. That is, if someone with an account at bank A makes a check out of a toilet seat (yes, it was done by my economics teacher in high school), you can take it to bank A for your money, but your own bank (bank B) probably won't accept it, since it needs to be routed to bank A for payment.

An increasingly common method of check handling at stores is to instantly convert it to an electronic transaction at the point-of-sale. You write out the check and hand it to the cashier which runs it through a scanner. The scanner reads the account information at the bottom of the check and initiates an electronic funds transfer from your bank account to the store's. If it is successful, the scanner marks the check as VOID/PAID and you receive the cancelled check back immediately for your records.

[sparkofcreation.livejournal.com]

Sorry, this is all out of order. Just a couple things I wanted to say.

Checks are becoming increasingly uncommon over here. I pay almost everything by check card (like whoever-it-was said, it's like a credit card, but linked to your checking account) and online (sometimes by giving them my check card number, sometimes by giving my routing number and having it debited from my checking account), and smaller things in cash. The only things I pay by check are rent and my electric bill (and my bank has online banking, so for a small fee I could have *them* issue and send the check every month). I do write checks to people if I owe them money and have no cash or if I need to send them money. My job issues paychecks (most jobs do) but most larger places allow you to have the money deposited directly to your bank account instead (either checking or savings) and probably a majority of people do that.

Do American checks have to be written out on special forms issued by the bank? Or are there "neutral" forms you can use regardless of which bank you choose?

Most places (by which I mean, "virtually everyone") will only accept checks that are pre-printed with your name, address, and routing number. When you open a checking account, they issue "starter checks" that have a random number (tied to your account, but not your account number) and no name/address (you have to write them in), but many places won't even take those. Technically you can write the information on any piece of paper or anything else (I heard of a lawsuit where a man, as a joke, wrote his check on a pig and set it loose in the office of a company he owed money too; they got rid of the pig and sued for non-payment; judge ruled the check was valid ... might be an urban legend though).

When you receive a check from someone else and deposit it, is your bank account credited with that amount immediately? Or do you have to wait? For how long? Does the length of time depend on whether you're using the same bank as the issuer?

My bank (for example) credits you the first $100 immediately. If it's an in-state check, the money is available by 1 pm if you deposit it by 1 on a weekday, or by 9 am on the nxt business day otherwise. If it's an out-of-state check, it takes 2-3 days.

When you deposit a check, do you get cash? Or do you have to deposit it in an account? Or can you do either?

Legally, either, but most places will only cash a check if you have an account there. There are check-cashing services that will cash paychecks (not personal checks) for a fee, and most grocery stores let you sign over your paycheck to them if your groceries cost more than a cetrain percentage of the check (like 10% or 25%), and then give you change in cash.

I gather that the person receiving it deposits it with his bank, then the piece of paper gets sent to your bank, your bank pays theirs somehow, and you get back the check?

Correct up 'til the end. Some banks (like mine) don't return the checks, just send you a statement (which, pretty much universally, you can also look at online); I can call and have photocopies of the checks themselves sent for free, though. I have duplicate checks (that make a carbon copy as I write them) so I know who they're to; if there's an issue I can get the copies.

[sparkofcreation.livejournal.com]

Oh, and as for the deposit/cash thing, you can write "FOR DEPOSIT ONLY" across the top of a check so it can't be cashed. Many business checks are written that way.

[pne.livejournal.com]

my bank has online banking, so for a small fee I could have *them* issue and send the check every month

Sorry, but this sounds funny to me because it appears incongruous: you have Internet-age state-of-the-art online banking, and out the other end comes... a paper check. How 20th century.

Again, apologies; not intended to be insulting. I'm just used to different things, so your description appeared amusing.

(Here, "online banking" would mean that I fill out a money transfer form on a web page and my bank sends the money to the payee's bank account, generally on the next business day; in many banks, this lets you avoid a small handling fee they charge for sending your bank a real paper money transfer form [or handing it in at the branch].)

For fixed-amount charges (such as rent), I have a standing order where my bank transfers a certain amount every month from my account to my landlord's; otherwise I would expect to transfer money from my account to theirs or, if I transact with them frequently, give the company permission to deduct money directly from my bank account.

[sparkofcreation.livejournal.com]

Sorry, but this sounds funny to me because it appears incongruous: you have Internet-age state-of-the-art online banking, and out the other end comes... a paper check. How 20th century.

Normally it works the same way you said, either at my bank or at the web page of the people I'm paying (phone company, credit cards, etc.) I do what I said about giving a debit card number, or routing number. A very few places aren't set up for that yet, in which case I can either write a check myself and mail it, or set up online to have the bank do it.

Re: Part 2

[damned-colonial.livejournal.com]

I know that in Germany, there are "Verrechnungsschecks" which can only be deposited, not exchanged for cash, but mostly people turn an ordinary cheque into a Verrechnungsscheck by drawing two diagonal lines across the top left corner and, optionally, writing "Nur zur Verrechnung". Apparently, those are safer especially if they get stolen, because you can tell where the money went since there's a name behind the account.

In Australia, cheques can be made out to a specific recipient, or to "cash". If a cheque is made out to cash, you can walk into a bank and cash it (at least in theory - in practice usually only the same (brand of) bank as the cheque is drawn on will cash it, because the others have no way of knowing whether it will bounce). If a cheque is made out to a recipient, then the cheque must be deposited into the named recipient's account (and will take N days to clear, usually 3 in Australia).

In Australia, if you cross a cheque twice and write "not negotiable" between the lines (and I believe that the words may actually be optional) then it means that nobody else is allowed to modify the cheque's details at all, and if the bank teller sees the recipient's name scribbed out and re-written, or the amount, or whatever, then they will not deposit it or cash it. If the cheque is *not* crossed, then it is theoretically "negotiable" and you are allowed to mess with the amount, recipient, etc. In practice, everyone crosses their cheques :)

In Canada, where I now live, cheques appear to be "not negotiable" by default, and actually drawing the cross-lines on them will invalidate them in some unspecified way (as I found out when I first wrote a cheque here).

In my (mostly Australian, slightly Canadian) experience, cheques are usually used to pay for business services where the business can track you down. Rent, for example, is very commonly paid by cheque. Casual/contract/freelance work ditto. At the moment I pay my house cleaning service by cheque monthly. But people generally won't accept cheques as payment in situations where they can't track you down properly for the money if it bounces - retail, for example, seldom accepts cheques or if they do they require solid ID to back it up.

K.

[bride.livejournal.com]

About the only thing I use cheques for is to print a big "VOID" on them and give them to someone to start automated payments with =D I rarely use them to actually pay something. I'm not sure if this is a Canadian thing or if it's just me. I pay everything online. =)

My bank (Royal Bank of Canada) charges me $4.00/month as a service charge. With that, I get online consolidated access to all my accounts (and any account data from other financial institutions if I really wanted to) and my credit card account. I get 10 free debit transactions per month (or was it 15? It's way more than I use, anyway...). I think I can also trade stocks and things online with them, but I don't use that feature.

Cheques are ordered from the bank. 200 for $20 (or something like that). They have my name printed on them and the standard cheque format with blanks to fill in the info. They're also encoded with a magnetic strip woven into the paper at the bottom with the financial institution numbers, account numbers, etc. Usually, they'll also tout 3-4 other "fraud prevention" features.

I only use cheques at places that don't take plastic and it's too much to be carrying that much cash around. I usually don't carry any cash on me. My bi-monthly paycheques get directly deposited into my account (I gave them one cheque with "VOID" on it =D).

You can deposit a cheque directly into the account. You can ask any bank to honour a cheque and give you cash. Usually if you have an account at that bank, they won't charge you extra for honouring the cheque. If you are not a client, they usually charge you something. Foreign currency cheques also get dinged a little with the exchange rate, then charged if you're not a client.

I think there's a holding period of a week for large amounts, but I've never run into problems with that.

I'm especially curious about the "getting it back" part

My cancelled/honoured cheques are enclosed with my monthly statement. Some banks do, some don't, some charge extra to do it. They asked me so I said yes =) Your cancelled cheques can be used as proof of payment and is admissible in court in the case of a dispute.

They're stamped up and down, scribbled and signed on. It shows the endorser/depositor's signature on the back, date of deposit, sometimes, their account number is written on the back, a stamp when it's processed by the payee's bank, a stamp when my bank gets it, a stamp when it's processed by my bank.

Can you tell whether a check was never cashed?

If it was never cashed, you'd never see the cheque and you'd never see the debit on your statement. =) You'd be able to see though, if someone other than the payee you specified deposited your cheque. There is something special they have to write on the back and they have to print their name. You can then report it as theft.

"balancing your checkbook"

This means trying to figure out exactly how much money you have available after:

• all the deposits you made to the chequing account have been added
• all the cheques you've written and have been cashed are subtracted
• all the cheques you've written but have not been cashed are also subtracted (because that money is really not available to you anymore; it's still in your account because the 4 step transaction between banks can take up to a week and it hasn't been completed yet)

[bride.livejournal.com]

Re: Balancing

Oh yeah, I forgot the service charges, interest (all $0.02 =P), withdrawals, deposits and all activity that needs to be added and subtracted as necessary. I don't manage my money this way, I do a simplified cash flow analysis.

[bride.livejournal.com]

A very few places aren't set up for that yet

Yeah, like my Mother-in-Law.

[fweebles.livejournal.com]

Hmm...I'll just add things randomly to what others have said.

In the last few (3 or 4?) years, I've only used cheques for two things: paying rent, since a lot of places that aren't big property management companies won't take debit cards, and for direct-deposit payroll when I start a new job (what bride said above, about giving them a VOIDed cheque so they can directly deposit money into your account without having to give YOU a cheque). I don't use cheques for anything else because the service charges for them are higher for me than for debit cards, and it takes time to process them, time during which I might forget I've used that money.

Cheques usually credit your account as soon as you deposit them, but many banks have a "hold" policy, wherein they will hold any cheque over a certain amount (often $300 or $500) for a certain number of days (3-5, sometimes even 7) before crediting your account, to make sure you're not forging cheques and running off with their money. A friend of mine who had an account that started out as a trust fund from her parents had it stipulated that ANY cheque put into it would be held for 14 days before she got credit...which she found out the hard way after depositing her student loan into the bank and then not having the money available to pay tuition. Oops.

I don't get my cheques back, since it costs extra for me, but I can mark cheques as "cleared" if they show up on my monthly statement. I pay so rarely with cheques now days and do the rest of my banking online, I barely even look at my statements except for filing them away (since I do all my "balancing" online).