- Certified check
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 5 business days. The explanation given is that it is due to fraud and it is for the account holder's protection.
- Payment systems
- Economics and finance stubs
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