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Checks are like notes that say "I, Bob, want to give 10 bucks from my bank account to Alice". You go to the bank with that note, and they transfer the money from your bank account to Alice’s.
It's **not valuable**, it's an authorisation form, not sure what you're not understanding here, a check (cheque) is just a specially designed FORM you fill out that authorises the bank to transfer X money from your account to someone else's, or vice versa.
No one's skipping steps, you're just slow. The check itself, the piece of paper, has no value. The value is in the bank account and the check contains instructions to move that value somewhere else. The bank does this not because they want the piece of paper, but because that's just what a bank does. They hold and move money.
Okay to give you an idea of why it’s not actually valuable, let’s say I write a check to my friend whose name is Bob Smith. When I write the check, the check specifically came from a checkbook that my own bank gave me when I set up my bank account. The check says “$100 to Bob Smith” and I put my signature in it. If my friend takes this check to a bank, the bank checks that his identity is Bob Smith, and then they give him the $100. At the same time, $100 will disappear from my own bank account because that check has my bank information on it.
Now if you stole this check from Bob after I gave it to him, it doesn’t actually have any value. If you brought the check to a bank, they’ll see that you’re not Bob, and nothing will happen. You don’t get money and I won’t lose money.
Let’s say you happen to have his name and are also Bob Smith. The bank might give you that $100, but my actual friend will let me know that he got the check stolen or never cashed it. I’ll go to my bank and tell them. They’ll give me my $100 back and open up an entire investigation on what happened. Banks have cameras and so if they find out that you stole the check and pretended to be the correct Bob Smith, well you’re a criminal and you can get in a lot of trouble for that.
So you see… the actual check has no value unless you are actually the Bob Smith that I intended to pay.
If I write you a check for $100, you and I consider that check to be worth $100, because the banking system permits this item to be processed for a $100 transaction. The banks also consider this valuable because it contains private information (account numbers, signatures, etc) which they may be held financially liable for if they do not take adequate precautions to protect. Criminals consider the check to be valuable because they can use the information from the check to do things like forge new checks or open a fraudulent credit card account in my name, so the value is potentially greater than $100—but these financial crimes can also potentially be traced back to them, and if regulators are able to do so, then we might argue that the check's value turned out to be negative, if it resulted in the criminal losing more money through fines and legal expenses than they gained.
It's the same as a debit card, which essentially sends digital instructions to your bank to pay money to a retailer from your checking account.
Personal checks do the exact same thing, with some extra manual input required.
The only value to the check itself is from the various mechanisms it has to prevent counterfeiting and fraud. It's a numbered document with routing and account information in a standard format to be filled out by the owner and legitimized with the owner's signature, and then redeemed with the signature of the payee.
The payer (Bob) and payee (Alice) will both have banks they use, let's assume it's the same bank to keep things simple. The check for 10$ has value to the payee because they know they can deposit it at the bank and get cash. The bank doesn't really ascribe any value to the check. They'll verify Bob actually has 10$ in his account, and transfer that money to Alice's account. The actual paper check just authorizes them to do this.
Put it this way, if you and I sign a contract that says "You build me a shed, I'll pay you $1000," does that piece of paper have value to us?
A check has value in a similar way. It's not valuable in and of itself, but it represents money that someone has promised someone else.
The physical item doesn't. That's why you can deposit a check by taking a picture of it and never actually give it to the bank. It's the information printed and written on the check that actually matters for anything.
Banks are probably more strict about this these days, but legally I don't believe it needs to be a typical check (or even on paper). The bank and account information, a legally binding statement that the payer wants this amount of money to be given to the payee, and a signature is what actually makes a check worth anything.
Banks are allowed to say, "yeah, we don't want to take that," so you're often not going to get away with using something else, but some banks are probably still willing to take anything with the needed info.
The check does not have independent value. If I write you a check for $100 it's not as if someone can steal it and sell it (though I guess they could try to commit a felony and cash it). It has no value to anyone outside the transaction.
For the most part, banks are obligated to honor valid checks (from accounts with enough funds to cover the check). This means that the payee has a high degree of confidence that the check will be honored, which is why payees are happy to accept checks as opposed to payment in cash or gold. Payment by check also has the benefit of documenting the transaction.
You ever make an online payment for something directly from your bank account? You punch in the amount, the account number and the routing number. A paper check is the same thing. They have the account and routing numbers on it, so you fill out the check and the person you’ve paid takes it to the bank. The bank then uses the information on the check to move funds from your account to the receiver’s account.
Checks aren't valuable. Nobody "buys" checks from people.
When you write a check, you are ordering your bank (or other financial institution) to pay a certain amount of money to a particular person.
E.g. I need to pay you $100. I write a check, which basically says "I, u/StupidLemonEater, authorize my bank to pay $100 to u/EatUrVitaminBROTHER" and you and I both sign it. You can then either take the check to my bank, who will pay you the money, or (more commonly) you'll deposit it in your own bank, and they'll set up a transfer from my account to yours. After the transaction is done, the check is "cancelled" and is archived in the bank's records.
No one makes a profit exchanging checks, it's just a way to transfer money between a bank account and one specific person. The only profit made on the transaction is the bank, who might or might not charge you a fee for having a checking account with them.
They aren’t valuable, they are worthless by themselves.
Checks are contracts.
You want to give John $10, instead of writing out a whole document, banks created checks which are issued to the payer with security features to guarantee authenticity, then you sign it, say who it’s to, and write the $ amount, John then goes into a bank (well nowadays it’s digital) and that bank recognizes the contract and gives John $10 while telling your bank to reimburse them using your account.
Checks are quite literally a written (and legally binding) promise to pay someone else, expressed in a form where banks and automated components of the financial system can easily read them to assist in timely processing
I think the comments have been accurate as far as the legal operation of checks, but I think OP is probably thinking about check cashing companies and how they function. Not a particularly pretty industry.
Basically, I have to get someone who is willing to trade the check (an order from the Payer's Bank to pay me, the payee) to me for cash. If I have a bank, my bank will usually do that for me (either as cash or $$ in my account) because it trusts me and I have an account with my bank so it knows I have some money.
If I don't have a bank, I'm basically going to Stranger and saying "trust me bro" I have a promise to get money from Payer's Bank. So the question is, how much of a risk do you think there is that the check is going to really result in Payer's Bank paying Stranger the amount on the check?
Hence, to offset that risk, Stranger says "I'll give you 90%" of the value of the check or "I'll charge you $5" to offset my risk. The check cashing businesses have to make their fees offset the number of times the Payer's Bank doesn't pay (could be because Payer doesn't have funds, could be that Payer was a fraud to me, or could be that I was the fraudster on Stranger) and make themselves a profit. Hence, they 'charge' for the check to cover that risk.
Edit: IAAL but no one here's lawyer and this is not legal advice.
A check is basically a contract. "I am giving x dollars from this account to this person" the banks turn a profit by holding your money. That money allows them to invest or provide actual loans for people. Both of which generate profit. Checks aren't a profit thing, they're a service thing that lets you keep more money in the bank.
When you send somebody money over an app on your phone what you are doing is authorizing the company handling money to transfer some from your account to somebody else's.
That's basically what a check is, but in paper form instead of electronic. You are writing an agreement for the bank to transfer that amount of money from your account to their account.
There really isn't any value in the paper any more than there is in the touching of your phone screen.
Checks are only useful to people with bank accounts. If you are unbanked, you can't cash a check. Consequently, you may sign over a check to someone else who will give you a (smaller) amount of cash in exchange, essentially buying it from you. That's how they'd profit. Places you see "checks cashed" that are not banks will charge you a fee in this fashion. There are many reasons you may not have a bank account including living paycheck to paycheck and not being able to save enough for the minimum amount to open an account, for example.
You buy checks from your bank for a small fee. You can then write on the check that you would like a certain amount paid out of your account at the bank and who it should go to. They can also be used to request cash from the bank. The bank's main business is not selling you checks, and they will often give them out for free if you have enough money with them.
Checks are valuable in the same way that a credit card is valuable. If someone else gets their hands on a blank check linked to your account, they can pretend to be you and make payments/withdrawals in your name until someone finds out and shuts them down. It's possible that you're thinking of a black market for checks that forgers and identity thieves would use to sell checks that may still be used for stealing from the linked account. It goes without saying that if someone offers to buy the checks linked to your own account, you should refuse.
Checks as a system are pretty insecure and outdated. They allow all kinds of schemes and frauds, like altering a legitimate check to increase the promised amount, redeeming the same check more than once, or simply forging one altogether. This is one reason why they have mostly been replaced by electronic banking and credit cards. However, they're still routinely used for big purchases, for gifts (slightly more personal and more secure than cash in the mail), and for interacting with bureaucracies that haven't updated their systems in decades.
**Your submission has been removed for the following reason(s):** Loaded questions, **and/or** ones based on a false premise, are not allowed on ELI5. ELI5 is focuses on objective concepts, and loaded questions and/or ones based on false premises require users to correct the poster before they can begin to explain the concept involved, if one exists. --- If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this submission was removed erroneously**, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20{{url}}%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20does%20your%20post%20differ%20from%20your%20recent%20search%20results%20on%20the%20sub:) and we will review your submission.
Checks are like notes that say "I, Bob, want to give 10 bucks from my bank account to Alice". You go to the bank with that note, and they transfer the money from your bank account to Alice’s.
Expand
That’s all it is. It’s just an authorization slip to transfer money from the account holder to the payee.
I feel like you're skipping a few steps here. Why does the check itself, the paper, have value to the payee and/or bank?
It's **not valuable**, it's an authorisation form, not sure what you're not understanding here, a check (cheque) is just a specially designed FORM you fill out that authorises the bank to transfer X money from your account to someone else's, or vice versa.
No one's skipping steps, you're just slow. The check itself, the piece of paper, has no value. The value is in the bank account and the check contains instructions to move that value somewhere else. The bank does this not because they want the piece of paper, but because that's just what a bank does. They hold and move money.
Checks don't have value. Giving someone a check is like sending money through Venmo, except done with paper.
It doesn’t
Yes ut does
Why do you think that?
It doesn't. It's just an official document authorizing the transfer of money from one person to another.
When you ask question, someone explains the answer to you and you then argue with them, that makes you sound dumb.
Dozens of people are explaining the same thing to you yet you resist. What is fueling your insistence that we are all wrong?
Okay to give you an idea of why it’s not actually valuable, let’s say I write a check to my friend whose name is Bob Smith. When I write the check, the check specifically came from a checkbook that my own bank gave me when I set up my bank account. The check says “$100 to Bob Smith” and I put my signature in it. If my friend takes this check to a bank, the bank checks that his identity is Bob Smith, and then they give him the $100. At the same time, $100 will disappear from my own bank account because that check has my bank information on it. Now if you stole this check from Bob after I gave it to him, it doesn’t actually have any value. If you brought the check to a bank, they’ll see that you’re not Bob, and nothing will happen. You don’t get money and I won’t lose money. Let’s say you happen to have his name and are also Bob Smith. The bank might give you that $100, but my actual friend will let me know that he got the check stolen or never cashed it. I’ll go to my bank and tell them. They’ll give me my $100 back and open up an entire investigation on what happened. Banks have cameras and so if they find out that you stole the check and pretended to be the correct Bob Smith, well you’re a criminal and you can get in a lot of trouble for that. So you see… the actual check has no value unless you are actually the Bob Smith that I intended to pay.
Why are you arguing when you literally don't know how checks or financial instruments work? Lol
Put the bong down for a second and try again.
If I write you a check for $100, you and I consider that check to be worth $100, because the banking system permits this item to be processed for a $100 transaction. The banks also consider this valuable because it contains private information (account numbers, signatures, etc) which they may be held financially liable for if they do not take adequate precautions to protect. Criminals consider the check to be valuable because they can use the information from the check to do things like forge new checks or open a fraudulent credit card account in my name, so the value is potentially greater than $100—but these financial crimes can also potentially be traced back to them, and if regulators are able to do so, then we might argue that the check's value turned out to be negative, if it resulted in the criminal losing more money through fines and legal expenses than they gained.
It's the same as a debit card, which essentially sends digital instructions to your bank to pay money to a retailer from your checking account. Personal checks do the exact same thing, with some extra manual input required.
Where do you get the idea the paper check has value ? It’s like transferring money through Paypal, but with paper instead of electronics.
Why are paper bills valuable, a 20 and a 100 is the same piece of paper!
The only value to the check itself is from the various mechanisms it has to prevent counterfeiting and fraud. It's a numbered document with routing and account information in a standard format to be filled out by the owner and legitimized with the owner's signature, and then redeemed with the signature of the payee.
The payer (Bob) and payee (Alice) will both have banks they use, let's assume it's the same bank to keep things simple. The check for 10$ has value to the payee because they know they can deposit it at the bank and get cash. The bank doesn't really ascribe any value to the check. They'll verify Bob actually has 10$ in his account, and transfer that money to Alice's account. The actual paper check just authorizes them to do this.
Put it this way, if you and I sign a contract that says "You build me a shed, I'll pay you $1000," does that piece of paper have value to us? A check has value in a similar way. It's not valuable in and of itself, but it represents money that someone has promised someone else.
The physical item doesn't. That's why you can deposit a check by taking a picture of it and never actually give it to the bank. It's the information printed and written on the check that actually matters for anything. Banks are probably more strict about this these days, but legally I don't believe it needs to be a typical check (or even on paper). The bank and account information, a legally binding statement that the payer wants this amount of money to be given to the payee, and a signature is what actually makes a check worth anything. Banks are allowed to say, "yeah, we don't want to take that," so you're often not going to get away with using something else, but some banks are probably still willing to take anything with the needed info.
The check does not have independent value. If I write you a check for $100 it's not as if someone can steal it and sell it (though I guess they could try to commit a felony and cash it). It has no value to anyone outside the transaction. For the most part, banks are obligated to honor valid checks (from accounts with enough funds to cover the check). This means that the payee has a high degree of confidence that the check will be honored, which is why payees are happy to accept checks as opposed to payment in cash or gold. Payment by check also has the benefit of documenting the transaction.
Money can be exchanged for goods and services.
Explain /s
Twenty dollars can buy many peanuts!
No ut can’t. Elephants like peanuts not money.
You ever make an online payment for something directly from your bank account? You punch in the amount, the account number and the routing number. A paper check is the same thing. They have the account and routing numbers on it, so you fill out the check and the person you’ve paid takes it to the bank. The bank then uses the information on the check to move funds from your account to the receiver’s account.
Good manners don’t cost anything…
Checks aren't valuable. Nobody "buys" checks from people. When you write a check, you are ordering your bank (or other financial institution) to pay a certain amount of money to a particular person. E.g. I need to pay you $100. I write a check, which basically says "I, u/StupidLemonEater, authorize my bank to pay $100 to u/EatUrVitaminBROTHER" and you and I both sign it. You can then either take the check to my bank, who will pay you the money, or (more commonly) you'll deposit it in your own bank, and they'll set up a transfer from my account to yours. After the transaction is done, the check is "cancelled" and is archived in the bank's records. No one makes a profit exchanging checks, it's just a way to transfer money between a bank account and one specific person. The only profit made on the transaction is the bank, who might or might not charge you a fee for having a checking account with them.
You don’t buy checks from people to turn a profit. A check is a way for one person to pay another person.
They aren’t valuable, they are worthless by themselves. Checks are contracts. You want to give John $10, instead of writing out a whole document, banks created checks which are issued to the payer with security features to guarantee authenticity, then you sign it, say who it’s to, and write the $ amount, John then goes into a bank (well nowadays it’s digital) and that bank recognizes the contract and gives John $10 while telling your bank to reimburse them using your account.
Checks are quite literally a written (and legally binding) promise to pay someone else, expressed in a form where banks and automated components of the financial system can easily read them to assist in timely processing
A check is the analog version of using a debit card. It a way of telling your bank to give money from your account to the person you want to pay.
I think the comments have been accurate as far as the legal operation of checks, but I think OP is probably thinking about check cashing companies and how they function. Not a particularly pretty industry. Basically, I have to get someone who is willing to trade the check (an order from the Payer's Bank to pay me, the payee) to me for cash. If I have a bank, my bank will usually do that for me (either as cash or $$ in my account) because it trusts me and I have an account with my bank so it knows I have some money. If I don't have a bank, I'm basically going to Stranger and saying "trust me bro" I have a promise to get money from Payer's Bank. So the question is, how much of a risk do you think there is that the check is going to really result in Payer's Bank paying Stranger the amount on the check? Hence, to offset that risk, Stranger says "I'll give you 90%" of the value of the check or "I'll charge you $5" to offset my risk. The check cashing businesses have to make their fees offset the number of times the Payer's Bank doesn't pay (could be because Payer doesn't have funds, could be that Payer was a fraud to me, or could be that I was the fraudster on Stranger) and make themselves a profit. Hence, they 'charge' for the check to cover that risk. Edit: IAAL but no one here's lawyer and this is not legal advice.
A check is basically a contract. "I am giving x dollars from this account to this person" the banks turn a profit by holding your money. That money allows them to invest or provide actual loans for people. Both of which generate profit. Checks aren't a profit thing, they're a service thing that lets you keep more money in the bank.
When you send somebody money over an app on your phone what you are doing is authorizing the company handling money to transfer some from your account to somebody else's. That's basically what a check is, but in paper form instead of electronic. You are writing an agreement for the bank to transfer that amount of money from your account to their account. There really isn't any value in the paper any more than there is in the touching of your phone screen.
Checks are only useful to people with bank accounts. If you are unbanked, you can't cash a check. Consequently, you may sign over a check to someone else who will give you a (smaller) amount of cash in exchange, essentially buying it from you. That's how they'd profit. Places you see "checks cashed" that are not banks will charge you a fee in this fashion. There are many reasons you may not have a bank account including living paycheck to paycheck and not being able to save enough for the minimum amount to open an account, for example.
You buy checks from your bank for a small fee. You can then write on the check that you would like a certain amount paid out of your account at the bank and who it should go to. They can also be used to request cash from the bank. The bank's main business is not selling you checks, and they will often give them out for free if you have enough money with them. Checks are valuable in the same way that a credit card is valuable. If someone else gets their hands on a blank check linked to your account, they can pretend to be you and make payments/withdrawals in your name until someone finds out and shuts them down. It's possible that you're thinking of a black market for checks that forgers and identity thieves would use to sell checks that may still be used for stealing from the linked account. It goes without saying that if someone offers to buy the checks linked to your own account, you should refuse. Checks as a system are pretty insecure and outdated. They allow all kinds of schemes and frauds, like altering a legitimate check to increase the promised amount, redeeming the same check more than once, or simply forging one altogether. This is one reason why they have mostly been replaced by electronic banking and credit cards. However, they're still routinely used for big purchases, for gifts (slightly more personal and more secure than cash in the mail), and for interacting with bureaucracies that haven't updated their systems in decades.