Apr 20, 2017
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What To Know About Avoiding Cashier's Check Scams

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Cashier's checks are often used in transactions where a personal check is considered unsafe, but a rash of scams involving forged cashier's checks has forced several government agencies to make public statements alerting the public. On Monday, the National Credit Union Association (NCUA) issued a warning against fake check scams, which take advantage of the long time it takes banks to identify forgeries. Coming soon after a similar announcement from the FTC last month, the warning makes it clear that cashier's checks don't always guarantee a safe transaction. Here are three things to keep in mind about cashier's checks.
Cashier's Checks Are Paid Out By Banks, Not IndividualsAt first glance, cashier's checks look mostly similar to regular personal checks. Unlike personal chec..

This Content is made possible by our Sponsor; the views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Cashier's checks are often used in transactions where a personal check is considered unsafe, but a rash of scams involving forged cashier's checks has forced several government agencies to make public statements alerting the public. On Monday, the National Credit Union Association (NCUA) issued a warning against fake check scams, which take advantage of the long time it takes banks to identify forgeries. Coming soon after a similar announcement from the FTC last month, the warning makes it clear that cashier's checks don't always guarantee a safe transaction. Here are three things to keep in mind about cashier's checks.

Cashier's Checks Are Paid Out By Banks, Not Individuals

At first glance, cashier's checks look mostly similar to regular personal checks. Unlike personal checks, however, they're considered a form of guaranteed payment more like a certified check or a money order. Because you have to pay for a cashier's check up front, the bank takes responsibility for paying the recipient. This makes it practically impossible for a cashier's check to bounce, which is a constant risk with personal checks.

Because they're backed by bank funds rather than individual accounts, cashier's checks count as "guaranteed funds" according to Federal Reserve regulations. This means that banks must make the first $5,000 of a cashier's check available within one business day of the deposit date. However, the rapid availability of money from a cashier's check presents scammers with a significant opportunity.

A Fake Cashier's Check May Clear Before It's Detected

If a fake cashier's check can pass the bank's initial inspection, an unsuspecting recipient might withdraw and spend the money before the bank realizes the fraud. At that point, the recipient is liable to repay the full amount. Many times, cashier's check scams will present victims with amounts that exceed the original payment. Victims are asked to deposit the whole check, then make a wire transfer to another account to "pay back" the difference.

By the time the bank identifies the fake check and takes the money back, the wire transfer has already cleared in an irreversible process, costing the victim the difference. And while the government insures your deposits against bank failures, FDIC insurance doesn't protect you from losses due to fraud. This makes it crucial to wait and verify that a cashier's check is legitimate before you actually start using the money in your account. Otherwise, the bank's reversal of the deposit could deplete your balance and result in extra overdraft fees.

Cashier's Checks Are Riskier To Use Online

Buying and selling goods on sites like eBay and craigslist can be convenient, but cashier's checks aren't the best method of payment in online transactions with distant strangers. Compared to doing business in person, the anonymity of e-commerce makes it far easier for unscrupulous users to deceive other people without risk of punishment. The problem is compounded by the vast reach of the Internet, which connects people across international lines.

As a rule, you should not accept cashier's checks as payment for transactions made through sites like eBay or craigslist. In such situations, online payment services like Paypal or Venmo are more appropriate. For especially large transactions, an even safer choice is to engage an escrow service, in which a third-party company will receive and hold the buyer's funds until both parties approve the transfer.

The article What to Know About Avoiding Cashier's Check Scams originally appeared on ValuePenguin.

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