Certified check
Encyclopedia
A certified check or certified cheque is a form of check
for which the bank verifies that sufficient funds exist in the account to cover the check, and so certifies, at the time the check is written. Those funds are then set aside in the bank's internal account until the check is cashed or returned by the payee. Thus, a certified check cannot "bounce", and, in this manner, its liquidity is similar to cash, absent failure of the bank.
In some countries, e.g. Germany
, it is illegal for a regular bank
to certify checks. This regulation is supposed to prevent certified checks from becoming a universal substitute for cash, which is considered the only legal tender
. The Deutsche Bundesbank
(Federal Bank) is the only financial institution authorized to issue certified checks.
The liquidity and certainty of payment of a certified cheque explains the fact that it is sometimes considered equivalent to cash, such as in the regulation of credit for casino gaming in Macau
, where the law explicitly states that if a casino patron obtains casino chips and pays with a certified cheque, the transaction is not regarded as credit for gaming (see Law 5/2004, art. 2).
Banks such as U.S. Bancorp
in the United States will still place a hold on certified checks on new accounts for five business days. The explanation given is that it is due to fraud and it is for the account holder's protection.
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
for which the bank verifies that sufficient funds exist in the account to cover the check, and so certifies, at the time the check is written. Those funds are then set aside in the bank's internal account until the check is cashed or returned by the payee. Thus, a certified check cannot "bounce", and, in this manner, its liquidity is similar to cash, absent failure of the bank.
In some countries, e.g. Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, it is illegal for a regular bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
to certify checks. This regulation is supposed to prevent certified checks from becoming a universal substitute for cash, which is considered the only legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....
. The Deutsche Bundesbank
Deutsche Bundesbank
The Deutsche Bundesbank is the central bank of the Federal Republic of Germany and as such part of the European System of Central Banks . Due to its strength and former size, the Bundesbank is the most influential member of the ESCB. Both the Deutsche Bundesbank and the European Central Bank are...
(Federal Bank) is the only financial institution authorized to issue certified checks.
The liquidity and certainty of payment of a certified cheque explains the fact that it is sometimes considered equivalent to cash, such as in the regulation of credit for casino gaming in Macau
Macau
Macau , also spelled Macao , is, along with Hong Kong, one of the two special administrative regions of the People's Republic of China...
, where the law explicitly states that if a casino patron obtains casino chips and pays with a certified cheque, the transaction is not regarded as credit for gaming (see Law 5/2004, art. 2).
Banks such as U.S. Bancorp
U.S. Bancorp
U.S. Bancorp is a diversified financial services holding company, headquartered in Minneapolis, Minnesota. It is the parent company of U.S. Bank, the fifth largest commercial bank in the United States based on $330 billion in assets. U.S. Bank ranks as the sixth largest bank in the U.S. based on...
in the United States will still place a hold on certified checks on new accounts for five business days. The explanation given is that it is due to fraud and it is for the account holder's protection.