Banking Basics 101: Check Endorsements

Banking Basics 101: Check Endorsements

Checks are negotiable instruments that permit the transfer of money from remitter to payee. Checks are considered a promise to pay; meaning, they are not guaranteed forms of payment like Money Orders or Cashier’s Checks. Since it is a promise to pay, many factors determine if a check can be accepted for deposit or cash. One of those factors is having a correct endorsement.

The remitter is the person who wrote and signed the check. The payee is the person getting paid. The payee signs the back of the check. This signature, or endorsement, concludes the negotiation of the check. This means the transaction is finalized.

To assure that a check is processed without delay or failure, it is important to endorse the checks exactly as intended by the remitter. The bank accepting the check should be looking for the correct endorsement, but here is a run down of basic rules for personal checks.

The most common type of endorsement is a when the payee signs the back of the check and then presents it for cash or deposit. This is called a blank endorsement. Ironic, I know. It is considered “blank” because there are no additional instructions or limitations; the check can be deposited or cashed.

Instead of signing your name on the endorsement line, another option is to write “For deposit only” on the back of the check. This is called a restrictive endorsement because it is declaring the check limited to deposits, meaning it can not be cashed. You may choose to present the check for deposit without providing an endorsement of your own. In this case, the depositing bank may mark the check with a stamp. Verbiage will vary, but will read along the lines of, “Pay to the account credited within Name of Bank.” This is similar to the payee writing “For deposit only” and is considered a restrictive endorsement.

A special endorsement is used when the payee wants to give their check to a person not named by the remitter. The payee must first endorse the check and then write, “Pay to the order of First Last name.” The new payee then endorses the check and presents it for payment. Due to the risks involved with cashing such checks, it is up to the financial institution’s discretion whether or not to accept the check, and how to do so. 

When there is only one payee named on a check, that one person alone has the right and responsibility to endorse the check. However, when multiple payees are listed, ownership of the funds depends on how the remitter wrote the check. If the names are connected by the word “AND,” all payees must endorse the check. If the names are connected by the word “OR,” then only one of the payees must sign. This is the same rule if the check reads “AND/OR;” one or all payees may sign. If names are simply listed, perhaps connected with commas but no words, it is at the bank’s discretion to interpret this payee designation as either “AND” or as “OR.” It may be safe to have all payees sign, but whenever it’s up to your bank’s discretion, it’s always best to make a call to your local branch and find out its policy. Like I love to say, knowledge is power!

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