What are personal checks?

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A personal check is a physical or electronic document that authorizes funds to be transferred from the checking account of the individual who executes the check. In addition to instructing the financial institutions involved in the transaction to transfer the indicated funds, if available and eligible, the personal check also represents the amount of funds being transferred and the checking account for the check.

Personal checks are also occasionally requested when an individuals is obtaining a loan or trying to set up a direct deposit arrangement with an employer. In either case, what the creditor or employer typically wants isn’t the check itself, but the ACH (automated clearing house) information contained on standard personal checks:

  1. The bank’s formal name
  2. The bank’s routing number
  3. The account holder’s checking account number

Armed with this information, creditors can automatically debit monthly payments from the borrower’s account, while employers can digitally transfer wages and salaries directly to the employee’s account. Increasingly, many companies and businesses are also using this system to pay contractors and vendors.

History of personal checks

Although debit cards, check cards, prepaid credit cards and online bill payment services have taken away significant market share from check usage, personal checks are still widely used and they have enjoyed more than 1,500 years of use, in different forms. Like debit and credit cards, personal checks have always offered the advantage of eliminating or minimizing the need to carry large amounts of cash when traveling or conducting business.

The origin of the checking systems is often traced to the Persian empire of the 3rd Century, when the empire issued letters of credit called chak. These letters of credit represented actual funds that would be provided by the empire. The growing Muslim empire continued to use a version of this system, but called it sakk.

The Knights Templar crusaders became very familiar with this system and eventually introduced it to Europeans, especially merchants traveling through Europe and Christian pilgrims going to Jerusalem. By 1500, Holland became the first nation to accept checks as a legally recognized form of payment and fund transfer.

By the early 1700s, the Bank of England introduced the first pre-printed checks, though it was more than 90 years later that personalized checks were introduced by the Commercial Bank of Scotland. By the late 1800s, many countries had formalized their laws regarding checks, with an attempt at an International Geneva Convention in 1931. Fifty years later, checks had become the most popular form of making payments – after cash.

Elements of a valid check

Note that a personal check does not have to be a typical check from a checking account to be considered a legal document. A personal check can be on any form of paper as long as the proper information is included on the check. However, most banks do not accept such documents and only consider a personal check as an official demand to transfer funds.

The personal check will typically display the following information:

  • The Name of the Institution (Bank) Holding the Funds
  • The Date the Check was Written
  • The Payee (Recipient)
  • The Amount in Dollars
  • The Amount Written
  • The Institution’s Routing Number
  • The Account Number
  • The Check Number
  • The Signature Line

Although the name and address of the account holder are typical features of most personal checks, they are not actually required. Checking account holders also have the option of adding personal information, such as phone numbers and email accounts.

This information listed above must be included on all checks in order for the institution holding the funds to honor the check. As long as there are sufficient funds in the account on the date the check was written or thereafter, the bank will cash the personal check and issue the funds directly to the payee if the check was presented to the institution directly.

A post-dated personal check is a check where the individual authorizes the transfer of funds for a specific amount on the future date that is listed on the check.

If the payee does not cash the check but instead deposits the check in the payee’s own account, the payee’s bank will request funds from the originating instruction upon demand. Most banks today request and transfer funds electronically by turning the check into an Automated Clearing House (ACH) transaction. A digital copy of the check is made and stored while the electronic request is executed.

If there are no funds in the personal checking account on or after the date listed on the personal check, the check may or may not be honored. A bank is under no obligation to transfer any funds for a checking account that does not have sufficient funds to cover the amount listed.

Alternatives to personal checks

There are several options available for individuals who do not have checking accounts. The following are some of the most popular:

  • Money orders
  • Cashier’s checks
  • Travelers checks
  • Prepaid credit cards

Checking accounts are an integral part of most consumers’ financial lives. However, many American adults fall in the unbanked category, which means they currently do not have a checking account or cannot easily obtain one.

There are options available for individuals to obtain checking accounts, even if they’ve been rejected by other banks or have damaged credit records. For more information, check out the “How to Get a Checking Account with Bad Credit” post in the NetCredit blog.

Disclaimer: NetCredit is a direct personal loan provider and does not provide financial advice, nor does it vouch for any vendor or service mentioned on our NetCredit personal finance blog or online consumer loan glossary. Always research and perform due diligence on any service provider or vendor before deciding to use them, and we recommend that you speak with a financial advisor regarding all decisions that will affect your finances.

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