Researching an answer to this question brought to light a lot of confusion, even among bank employees, about the differences. Under U.S. law, Article 3 of the Uniform Commercial Code defines and sets the regulations for these negotiable instruments.

Cashier’s Check

A cashier’s check is a direct obligation of the bank. Therefore, the company to whom the check is made payable is guaranteed payment. This type of check is drawn on the bank itself and is signed by an officer or employee of the bank. It may also be called a “bank check”, “official check”, “bank official check”, or “teller’s check”.

Essentially, a bank withdraws the value of the check (plus a fee) from the purchaser’s account and deposits it into a bank escrow account at the same location. When the check is cashed, the funds are drawn from this escrow account. (A ‘teller’s check” is a cashier check drawn on an account at another bank.)

Several court decisions have held that a cashier’s check is the equivalent of cash and, as such, payment on it cannot be “stopped.” However, a bank may refuse to pay a cashier’s check if it believes it has a defense against the entity presenting the check. A defense might be an affidavit from the purchaser stating that the check was stolen.

Certified Check

A certified check is a check, written against a bank customer’s account, that the bank guarantees is “good”. In other words, the bank certifies that the signature is genuine and there are sufficient funds to cover the check. The check is drawn on the purchaser’s account. A bank officer then places markings on the check that indicate the bank's promise to honor the check when it is presented, providing it has not been altered.

A certified check can only be “stopped” if the maker of the check (the payor) obtains a bond to indemnify the bank against any claim that may be made against the bank pursuant to the stopped check.

According to one source, certified checks are rarely used in today’s banking world.

Neither cashier’s nor certified checks can become stale. The six-month “stale date” rule found in UCC §4-404 only applies to checks drawn on checking accounts. You might see cashier’s or certified checks with legends stating something like “not valid after xx days”. This is used to encourage the payee to cash the check quickly. However, legally, a bank would be ill-advised to refuse payment on the check simply because it was presented after some specific date.

While both the cashier’s and certified checks are guaranteed by a bank, the most secure is probably the cashier’s check. It is a direct obligation of the issuing bank. If there is a problem with payment, remedies can be sought against the bank directly.

Money Order

The term “money order” is not well-defined by the UCC code; however, UCC §3-104(f) does state that “an instrument may be a check even though it is described on its face by another term, such as ‘money order’.”

There are actually two types of money orders: bank money orders and personal money orders.

Bank money orders are a form of cashier’s or teller’s check, and subject to the same regulations. They are sold by banks and signed by a bank official. They are usually fully completed (including payee and remitter information) when sold.

Personal money orders are more common and sold in a variety of venues. The purchaser signs the money order, and remitter or payee information is often left blank for the purchaser to complete later. Personal money orders are subject to “stop payments” just like personal checks.

*****

Credit-to-Cash Advisor is sponsored by ABC-Amega Inc. - providing effective accounts receivable management and commercial debt collection services since 1929.