The “What” and “Why” of Check Cashing Services

by kdizzle
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A man signing a check labeled as a gift for the amount of $250.

When did we decide that it was easier to give someone a piece of paper promising to pay rather than carrying around cold hard cash? Well that’s exactly what your checkbook is: a bunch of little pieces of paper that you write out to a person or business promising to pay that amount with funds in your bank account. And, as it turns out, our lil’ ol ancestors had their own versions of the modern day checkbook. In fact, the use of checks dates back to as early as 300 B.C.! (Think about it: money was heavy back in 300 B.C., so using checks would have made shopping day a whole lot easier, that’s for sure. And, while not quite that old, the oldest surviving checkbook in the United States dates to the late 1700s; and (just for extra historical points) one of the entries in that very historical checkbook is a check written to Alexander Hamilton! (You know: founding father, master Revolutionary War strategist, recently seen rock’n his own Broadway musical … yeah, that guy).   

So, with that “Hamilton” song stuck in your head, let’s get back to checks. No matter how many cards we carry around (and a little cash too) we still use checks! Checks are a convenient way to pay for goods and services. But the whole point of a check is to eventually negotiate it and turn it into cold hard cash. So, whether it’s your tax refund, your paycheck, or even a gift from grandma (she never forgets a birthday!), the next time you get money in the form of a check, you’ll need to decide where and how to cash it in order to pocket the funds. At Moneytree, we’ve been cashing checks for a long time (not Alexander Hamilton time, mind you – but for 37+ years … which is a good chunk of history). Cashing checks is our second language, and we know a little bit about the “what” and the “why” of check cashing! Read on! 

What is a check?

A check is a “negotiable instrument” meaning it is a signed document that promises payment in a specified amount to a specified person/entity. The person or entity writing the check is known as the “maker” and the person to whom the check is written is the “payee.” When the payee “negotiates” a check (i.e. endorse the check and exchange it for cash) the maker’s bank is instructed to transfer funds from the maker’s account to the payee’s account or the party to whom the check has been endorsed. 

Simple, right?!

What is check cashing?

Simple, yes!! But, let’s look under the hood at a couple different ways that the payee can “negotiate” a check.

Checks can be cashed or deposited.

  • If the payee deposits a check into his or her bank account, the payee endorses the check “for deposit” to instruct the maker’s bank to transfer funds from the maker’s bank account to the payee’s bank account.
  • When a check is “cashed” there are a couple of possible scenarios:
    • When a person writes a check out to “cash” or writes a check out to a person or entity with the intent of getting cash back rather than to pay for a good or service, this is called a “one-party check” and it is used by the maker to turn funds from his or her own bank account into cash.  
    • When a person receives a check from another person or business and then endorses the check over to a bank, check cashing service or other person or business, this is called a “two-party check” and is used by the payee to get cash from the party to whom the check is endorsed. By giving the original payee cash in exchange for the check, the party to whom the check is endorsed “steps into the shoes” of the original payee with the same expectations that money will be available in the maker’s bank account when the new payee cashes the check.      

Why use a check cashing service?

Companies that offer check cashing services, like Moneytree, cash one-party and two-party checks, typically for a flat fee representing some percentage of the amount of the check cashed. Some services may also charge a transaction fee to cover the cost of servicing the check.  

If you’ve never used a check cashing service (maybe you’ve always deposited or cashed your checks at your bank) you might be wondering “why would anyone pay a fee to cash a check?” Well, there are a lot of people who have weighed the costs and benefits and decided that check cashing services are the best choice. Let’s have a look. 

First, let’s talk about the fee. You might be saying to yourself, “I’ve heard those fees are astronomical! Why would anyone ever pay them?” You might be pleasantly surprised by how low the fees can be! For example, your bestie bought the tickets for the two of you to go see Hamilton for the third time (we don’t judge!). You just got your $500 tax refund check so you take it to Moneytree to cash in order to pay her back. Since Moneytree charges a fee of 1.99%[1] of the check amount for a tax refund check, it’ll cost you only $9.95 to cash your $500 check and make your bestie smile. Yes – in this scenario, it costs literally pennies on the dollar for you to walk out humming “My Shot” with the greenbacks in your pocket.

These modest fees are charged for the same reason that any business charges for goods and services. Check cashing fees pay for business expenses and overhead, like rent and labor. They are also charged as a small hedge against the risk of loss on the check (i.e. there will be no money in the maker’s account when the check is deposited or that the check will be dishonored in some other way (e.g. stop payment, closed account, etc.). See our discussion of “Holds” below.  

At Moneytree we have some of the lowest fees in the industry – we always put our Customers first, and our check cashing costs reflect that. (Rates vary by location.) To find out how much it’ll cost to cash a check in your neighborhood, visit our Moneytree Branch locator.

Second, let’s remember what we said about what can be done with a check. They can be deposited or cashed. But, in order to deposit or cash your check at a bank, you need … well … a bank account. But what if you don’t have a bank account? Lots of people don’t. Having a bank account can be expensive and many people have rationally decided that the costs of maintaining a bank account outweigh the benefits. And there are other reasons. According to a 2019 survey by the FDIC, people choose not to have a traditional bank account for any number of reasons ranging from “don’t trust banks” to “fees are too high” to “banks don’t offer needed products and services.” 

Third, even if someone does have a bank account, let’s face it – banks don’t make it easy.  Banks have a lot of restrictions on what kinds of checks they will cash and in what amounts. Bank hours are notoriously limited and, dare we say … inconvenient. Most banks open late, close early, aren’t open on weekends, and forget about holidays altogether! And, don’t even try cashing a check at a bank where you do not have an account. Sorry Charlie!

Finally, banks don’t always give you immediate access to your cash. Banks frequently place “holds” on check transactions. That’s right, you’re not getting your money (at least not all of it) today. A “check hold” is intended to shift the risk that the maker’s bank account will not have sufficient funds in it when the direction to transfer funds is given. Banks don’t like that risk of losing on a check and so they “wait” to provide cash or credit to the payee until after they have the money from the maker’s account in hand. Understandable? Yes, but what if you need your money today? They say that patience is a virtue … but not when you need immediate access to your cash to pay your bills or your suppliers and to keep everything afloat.

So, whether someone has or doesn’t have a bank account, there are plenty of good reasons people choose to use a check cashing service like Moneytree! And if you decide to use a check cashing service too, you will be in good company!

And that’s where Moneytree comes in!

According to the Financial Service Centers of America, there are roughly 137 million(!!!) checks cashed annually equating to more than $58.3 billion in transactions conducted at check cashing locations (that does not include traditional banks and credit unions each year). That’s a lot of checks!!  

For the past 37 years, Moneytree has been a leader in the check cashing industry. With Moneytree it’s easy to say:  

  • “No to Holds” – With Moneytree, you get your cash in hand, immediately. We also cash checks made payable to your business, which can really help when you’re trying to focus on making money versus waiting for your money! Talk about fast cash!
  • “Yes to Convenience” – Moneytree branches offer the type of convenience traditional banking does not. Most of our locations are open evenings, weekends and most holidays, making us more available to serve our customers when it’s convenient for them!
  • “No to Restrictions” – At Moneytree, we accept all types of ID, cash all types of checks, and have no restrictions on the check amount.
  • “Yes to Financial Freedom” – Customers also opt to cash their checks with a check cashing service in order to control their finances by using cash instead of paying bank account fees, using a debit card or paying bills by check. Moneytree also offers low cost money orders and bill pay services, making it a convenient one-stop shop for anyone to take care of their monthly rent and other expenses.
  • “Even Fun Extras” –Moneytree’s Refer a Friend program offers you a cash-in-hand bonus for any customer you refer to us who cashes a qualifying check for $100 or more! Easy money.

There you have it! Reasonable fees, more convenient hours, minimal restrictions, and your cash when you want it – there are lots of great reasons to visit a Moneytree branch near you!

If you’re looking to learn more about Moneytree’s quick and convenient check cashing or our Refer a Friend program, check out our website to find a branch in your state!

[1] Prices are effect through June 2021 on tax refund checks only and are subject to change.  Check your local Moneytree Branch for tax refund check cashing and other check cashing transaction rates in your area. 

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