You can't always trust certified checks

Don TaylorDear Dr. Don,
I have a valuable item for sale and now have an out-of-state buyer. The buyer wants to pay by certified check, but I have decided not to take the check as payment because of check counterfeiting risks. I would prefer a bank wire, but would like to know the safest way to collect this money. Thanks for your response.
-- Jumpy Joyce

Accountant being handed a check © iStock

Dear Joyce,
While we tend to focus on other financial risks, such as identity theft and hacking, criminals continue to focus on counterfeiting checks, a decades-old practice. While certified checks are intended to reduce your risks, some precautions are called for.

Definitions of terms: Certified and cashier's checks

Let's start out by differentiating between a certified check and a cashier's check.

Certified check

An officer of the bank has certified on the check that good funds were available in the amount of the check at the time the check was originated and that the signature on the check is genuine. The bank then sets aside the funds and will only use these funds to pay the certified check. If the check isn't a forgery, you won't have an issue depositing good funds into your account.

Cashier's check

In contrast, a cashier's check is drawn on the issuing bank's escrow account. The funds are moved from the account holder's account to the bank's escrow account. A cashier's check is an obligation of the issuing bank. The Bankrate feature, "Counterfeiters switch to cashier's checks," explains the counterfeiting issues with that form of payment. Money orders, even USPS money orders, are also being counterfeited.

Funds are yours when the check clears

Getting the funds deposited doesn't mean you have good funds until the check clears, as this excerpt from the Federal Trade Commission's Facts for Consumers Publication, "Giving the Bounce to Counterfeit Check Scams," explains:

Under federal law, banks must make funds available to you from U.S. Treasury checks, official bank checks (cashier's checks, certified checks and teller's checks), and checks paid by government agencies at the opening of business the day after you deposit the check. For other checks, banks must similarly make the 1st $100 available the day after you deposit the check. Remaining funds must be made available on the 2nd day after the deposit if payable by a local bank, and within 5 days if drawn on distant banks.

However, just because funds are available on a check you've deposited doesn't mean the check is good. It's best not to rely on money from any type of check (cashier, business or personal check or money order) unless you know and trust the person you're dealing with or, better yet -- until the bank confirms that the check has cleared. Forgeries can take weeks to be discovered and untangled. The bottom line is that until the bank confirms that the funds from the check have been deposited into your account, you are responsible for any funds you withdraw against that check.

Your idea of a wire transfer to your bank is a good one. You'll know that you have good funds in your account that day.

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