As the name suggests, certified funds have been officially cleared (or certified) by a bank or financial institution in the US or Canada. Sometimes, certified funds might even be called certified cheques. The idea behind certified funds is that the recipient and the sender do not have to worry about bounced checks or the risk of insufficient funds.
Want a few more details? As always, Project Financially Free is on your side. Let’s examine what certified funds are, how they work, and what you can use them for.
Certified funds: in brief
If you bank in the US or Canada, you’ll likely come across certified funds at one point or another. However, if you’re just opening up a North American account for the first time, or if you’re unsure what are certified funds, what are they are used for, it makes sense to ask a few questions!
Certified funds, as the name implies, are funds that a bank has certified are legitimate, will clear successfully, and are earmarked for their intended purpose. That way, the recipient of the funds is guaranteed to expect them paid into their bank.
The idea behind certified funds is that the recipient and the sender do not have to worry about bounced checks or the risk of insufficient funds. Therefore, both parties are far more confident in a sale or transfer and can budget effectively.
Certified cheques are also quicker to clear than personal checks, so they can be a great alternative when you’re trying to complete a sale quickly.
What’s more, certified funds are far less susceptible to fraud than personal checks, are widely accepted across the US, and can even increase your credibility! They show that you, as a buyer, are responsible, capable, and trustworthy.
Even if you are all of those things, the risk of a bounced check can quickly change a person’s financial reputation – meaning I really wouldn’t blame you if you wanted to start trading in certified funds for the better.
When might I use certified funds?
Believe it or not, you might have to use certified funds more than you might think! In particular, they are useful when paying for real estate in all its funds.
For property purchases or rental rates, sellers and landlords (naturally) want to guarantee their funds will arrive when they expect them.
For example, if you’re a tenant at a new property, your landlord may ask you to provide certified funds to clear a security deposit or for your monthly payments into their rent accounts.
Certified funds can also prove highly useful in vehicle finance. For example, used car salespeople may ask for certified funds to complete your purchase or set up a lease before you drive away. You may have even used certified checks to purchase or sell a car directly from an individual.
These are all common uses of certified funds, but they also apply in circumstances beyond property and vehicle ownership.
For example, you may need to provide certified funds when dealing with a legal settlement, an escrow service, an international transaction, or even when paying off certain kinds of debt or loan.
Certified funds are pretty much the standard for “guaranteed” payments, and given the current financial landscape, are becoming increasingly required in certain circumstances.
How to get certified funds from bank
There are different types of certified funds, so let’s focus on one type for this example. Certified checks are among the most commonly used certified funds – you’ll likely guarantee payment to a landlord or a dealer, for example, with a pre-cleared check.
So, how do you get a certified check?
Firstly, consult your bank. Some banks and financiers provide cashier’s checks, while others offer certified checks – always ensure you know which checks you’re entitled to.
Sometimes, you can claim certified checks online or via phone. However, this will vary depending on who you bank with, meaning it’s worth checking their individual process and fees (if applicable).
Alternatively, speak to a teller in person. Head to your local branch and advise a teller that you need to fill out a certified check. They’ll help you fill out the details if you’re new to the process.
Your teller will then ask to see a valid photo ID, so ensure you have it! The teller will then use your information to clear funds in your account and mark your check as certified. It’s important to note that the minute your certified check is issued, the corresponding funds will be removed from your account. In other words, your balance will drop by the amount that the cheque has been made for.
The bank holds this amount in a form of escrow and will release the funds to the recipient when their bank processes the cheque for settling the funds.
In exchange for its services, your bank will likely charge a nominal fee. Your teller should also inform you of any applicable fees – ensure you understand and agree to them before taking further action. Typically the bank will charge a small fee to process this for you.
Keep your receipt when provided, and let the recipient know that a certified check is on its way. When you’re ready to close the deal, hand them the cheque and you’re good to go!
What are the different types of certified funds?
As mentioned above, multiple kinds of certified funds are available to choose from based on what your bank provides, what the recipient prefers, and your own preferences.
Since we have already discussed certified checks, let’s take a closer look at some of the other examples and options available for certified funds.
Money orders are some of the most convenient certified funds. You can purchase them from various retailers, including grocery stores, pharmacies, and sorting offices.
And, instead of ensuring that the money is in your bank account, all you need to do is take the exact amount you wish to send to a qualified retailer, and they will send the money where it needs to go! They, too, offer a fee for this service, so be prepared to pay a little for the privilege.
A cashier’s check can be used as a substitute for certified funds, but it is important to note that it is not exactly certified.
Certified funds are issued by you, the account holder, while the bank issues cashier’s checks. In many cases, businesses and sellers prefer cashier’s checks because they are generally considered an even more secure means of payment.
However, the bank will only issue a cashier’s check if you have enough money in your account to cover the cost. Some banks do charge fees for this service while others don’t, so always check with your bank before going ahead.
You can also ask your bank to wire transfer money if you want to guarantee it appearing in your recipient’s account. As with cashier’s checks, banks will only process wire transfers if you have sufficient money in your account.
Simply put, a wire transfer is an electronic transfer of money between two institutions, such as your bank and a letting agency.
Money orders vs certified funds: What’s the difference?
Money orders and certified funds both offer the same benefits – guaranteed money that’s available to clear without the risk of bouncing. However, while they’re similar in what they offer, how you use them (and what for) can differ.
Certified funds are typically available for you to send via check, which you’ll write and send via your bank as a draft. Your bank verifies that you have the money available and will hold the cash to the end of the transaction.
Money orders, of course, are available from postal service locations, though they tend to be preferred by people who wish to send smaller amounts of money. At the time of writing, you can send up to $1,000 via money order.
People who use certified checks (or even cashier’s checks) do so when they have significant funds they wish to transfer and if they wish to connect the transfers directly to their banks. Otherwise, money orders are typically more convenient as there’s less paperwork to fill in, and you simply need to buy an order from your local postal service.
Typically, you’d probably use a money order to send funds as a gift or as a token amount. If you’re sending payments to landlords or to creditors, you may need to send a certified check to formally confirm that your funds will clear.
Both options ensure your recipient knows they will receive the money you promise them. They’re much safer than depending on traditional checks if you know there’s a chance money may not enter your account in time!
What are not considered certified funds?
There are several forms of payment that are not considered certified funds. Let’s quickly take a look and I’m sure you’ll understand why these are not accepted.
Personal checks are written from an individual’s account, issued by a person directly, and therefore do not come with any guarantee that the funds are available. The check must clear after deposit before the recipient can access the funds, and there’s always a risk of a personal check bouncing due to insufficient funds – whether it’s intentional or not.
Credit Cards and Debit Cards
Credit and debit card transactions are also not considered certified funds. While these types of payments offer a measure of convenience and immediacy, they do not provide the same level of assurance as certified funds. For example, credit card transactions can be disputed.
Much like personal cheques, debit card transactions are dependent on the account holder having sufficient funds, which can change between the time of the transaction and when the merchant tries to collect the funds.
Also typically since amounts where certified funds are needed are quite large, it’s unlikely that credit cards or debit cards will have sufficient allowances or credit limits to let you use them.
While online platforms can be great for transferring funds nearly instantly from person-to-person, they will not be considered certified funds. Transfers through Paypal or Venmo could potentially be reversed or subject to dispute, hence they do not provide the assuredness that comes with certified funds.
Cash is an interesting case when considering if it’s classified as certified funds. While one might consider cold hard cash as certain as can be – since you can see it in front of you – there is still always a risk. Currency can be forged or counterfeited, and there is always the risk of money being miscounted or stolen from you once you have received the cash.
Additionally, since you cannot legally show the source of funds, or prove that funds were indeed transferred, there is a huge legal risk that you take on by making big transactions in cash.
For these reasons, cash is not counted as certified funds. So while cash is convenient in many cases due to its immediate availability and certainty, it lacks some of the security and traceability features that are inherent in other forms of certified funds.
Is it worth using certified funds?
In many cases, certified funds are preferable to using standard checks as there’s a guarantee the money will be available when the cheque is processed for settlement in to the recipient’s account.
If you’re a landlord or are providing a service on the proviso that money clears, I’d personally recommend you request certified checks or money orders as standard.
Is cash certified funds?
No, cash is not considered as certified funds.
Is debit card certified funds?
No, debit cards are not considered as certified funds.
Is a money order considered certified funds?
Yes, the could be considered certified funds. However the use of money orders is restricted to certain cases. They are typically not used for large transactions such as buying real estate or a vehicle.