When making large purchases, such as the down payment on a home, your lender may request the funds be paid via a cashier's check. A cashier's check is backed by the funds of the bank, rather than the funds of the account holder. Because the money comes out of the bank's own assets, the receiver doesn't risk that it will be rejected for insufficient funds. Most major banks allow their savings and checking account holders to obtain cashier's checks.
How It Works
Typically, when you write a personal check, the receiver of the check has no guarantee that you have enough money in your account to cover that check. With a cashier's check, the bank has already taken the money out of the customer's account. It then assumes all responsibility for that check. In effect, the customer pays the bank, which then allocates the funds to pay the recipient.
Rules of Cashier’s Checks
Each issuing bank sets its own rules regarding cashier's checks, but generally, the receiver must cash it within 90 to 120 days of issue. Because the bank writes the check, you need to provide it with the full name of the receiver. If you are not a customer of a particular bank, you may still be able to get a cashier's check there. You will need the full amount of the cashier's check you are requesting, along with identification, such as a driver's license.