Cheques can be handy for many of your banking needs but sometimes a personal cheque isn’t enough. In specific circumstances, you may be asked for a guaranteed form of payment to prove that you can, in fact, afford what you are trying to purchase. In this case, a certified cheque will come in handy.
What is a certified cheque?
A certified cheque is a type of cheque that is guaranteed by the issuing financial institution. Your bank or credit union puts a hold on the funds in your account, essentially guaranteeing there will be enough funds in your account when the recipient cashes the cheque. A personal cheque is certified when a bank stamps it with its official seal to show that it has verified your signature and the funds.
Certified cheques can reduce the risk of non-payment or of a personal cheque bouncing due to lack of funds. Certified cheques are commonly used for transactions involving large amounts of money — for example, a down payment on a home — that may require guaranteed funds.
A certified cheque offers payment security. However, fraud still can occur so examine the cheque to ensure there are no obvious mistakes or typos. If anything seems unusual, contact the issuing bank to verify that the cheque is genuine.
How to get a certified cheque
You should have a bank account to get a certified cheque. You can visit your bank to request it. The bank representative first confirms that you have enough funds to cover the amount requested on the cheque, and then verifies your identity and signature.
Once all that is confirmed, the bank lists any conditions on the cheque (such as how long the cheque will be valid). Then you can fill out the cheque. When you’re finished, the teller adds the bank’s official seal, making it a certified cheque.
Banks usually charge a fee for this service. Depending on the type of account you have, it may cost you as much as $20 to get a cheque certified.
How to use a certified cheque
Once you have a certified cheque, you can hand it over to the recipient who can cash it based on any conditions set out by the financial institution. The full amount of the funds may take a couple of days to show up in the account, but since the cheque has been certified, a portion of the value may be available right away (usually up to $5,000).
Bank draft vs certified cheque
Bank drafts and certified cheques are similar in some ways. Both payment options come with a guarantee of the availability of funds. However, when a bank draft is issued, the financial institution withdraws the money from your account and puts it aside. For a certified cheque, the bank doesn’t withdraw the amount from your account but puts a hold on it to stop you from using the funds until the cheque is cashed. Either way, you won’t have access to the funds.
Another key difference is that a bank draft payment can be stopped if it’s destroyed or lost. But a certified cheque cannot be stopped once it has been issued. Additionally, bank drafts tend to be cheaper than certified cheques.
Money order vs certified cheque
Money orders are another guaranteed and safe way of transfering money. It’s often used when you need to send money safely via mail. Unlike with a certified cheque, however, you do not need a bank account to send a money order, which makes it a more flexible payment option for some individuals. Money orders in Canada are available for a maximum amount of $999.99. You can get a money order from a financial institution or at Canada Post.
Alternatives to a certified cheque
If using a certified cheque is not an option or you want to explore other alternatives, you can use other payment methods. These include bank drafts and money orders as discussed above, as well as the following:
An Interac e-Transfer allows you to quickly and easily send money via your bank account to anyone in Canada, using their email address or mobile number. Many Canadian banks and financial institutions may offer this e-transfer service free of charge, depending on the kind of account you have.
International transfer or money order
If you need to send money abroad, you may be able to request a transfer directly from your online banking platform. There’s typically a limit as to how much you can send per day. International money transfers also incur a fee, which varies by bank. Other ways to send money internationally include a money order or through a service, like Western Union.
If you need to send money quickly and securely from your bank account to another account in Canada or overseas, you can use a wire transfer. Fees vary based on the financial institution. You can also use this payment option to send money in any other currency.
They’re all secure payment options that avoid using cash, but bank drafts, certified cheques and money orders differ in availability, security and cost.