A certified check is a type of check issued by a bank, in which the bank verifies that the account holder has sufficient funds in their account to cover the amount specified on the check. The bank then sets aside or “freezes” those funds until the check is cashed or deposited, ensuring that the recipient can trust that the check will not bounce due to insufficient funds.
Certified checks are commonly used for large transactions, such as a down payment on a house or a car purchase, where the payee requires assurance that the funds are indeed available and will be transferred when the check is cashed. This type of check provides a higher level of security and trust between the payer and payee, as the bank has already confirmed the availability of funds.
Example of a Certified Check
Let’s consider a scenario where Jane wants to buy a used car from a private seller, Tom. The car’s price is $10,000, and Tom wants to be sure that he will receive the full payment without any issues. Jane decides to use a certified check to make the payment.
Here are the steps involved in this example:
- Jane goes to her bank and requests a certified check for $10,000.
- The bank verifies that Jane has sufficient funds in her account to cover the amount and then sets aside or “freezes” those funds.
- The bank issues a certified check made out to Tom, with the amount of $10,000 specified on it.
- Jane gives the certified check to Tom as payment for the car.
- Tom, confident that the funds are guaranteed by the bank, deposits the check into his account or cashes it at his bank.
- The bank transfers the funds from Jane’s account to Tom’s account, completing the transaction.
In this example, the certified check provides both Jane and Tom with a secure and reliable method for completing the car purchase, ensuring that the funds are available and will be transferred as agreed.