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Tuesday, May 28, 2024

How to endorse a check

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While the use of paper checks may have declined, they still play a pivotal role in basic financial transactions. Whether you receive a check as a gift, reimbursement, or for certain payments, it is crucial to know how to endorse it as the recipient. This ensures that the funds are deposited into your account securely and efficiently.

There are several distinct types of endorsements, each serving specific purposes. Here is a comprehensive overview of each, along with tips on ensuring accurate and secure processing of your check.

Where to endorse a check

On the back of most checks, you’ll find a designated area specifically for endorsements. This area is usually indicated by lines, shading, or the phrase “Endorse here.” It’s where you’ll sign the check and add any necessary notes.

Ensure that your signature and any additional details, such as your checking account number, fit within the designated endorsement area. Banks may not accept checks if the endorsement exceeds this space.

It is vital to write legibly in pen. If you are including any restrictive or special endorsement, ensure that your writing is clear and straightforward.

Types of endorsements

Blank endorsement

Blank endorsements, the most basic form of endorsement, involve a simple signature on the back of a check. While this method is straightforward, it does come with a drawback: If you were to misplace the check or if it gets stolen, anyone who gets hold of it could cash it.

Restrictive endorsement

A higher level of security can be achieved through the use of a restrictive endorsement. By writing “For deposit only” above your signature, you limit the actions that can be taken with the check. In other words, if the check falls into the wrong hands, it can only be deposited into a bank account, such as a checking account, preventing it from being directly cashed. This measure ensures greater protection and peace of mind.

Special or full endorsement

Occasionally, you may find it necessary to transfer a check to someone else, in which case you must provide a special or full endorsement. Simply write “Pay to the order of [full name]” before signing. This allows the designated person to either cash or deposit the check. While this approach offers flexibility, it also necessitates placing trust in the individual you are assigning the check to.

For the benefit of (FBO) endorsement

An FBO endorsement signifies that the funds from a check are intended for the benefit of a designated third party. Unlike a special or full endorsement, the original recipient of the check maintains control over it while allocating the funds for the benefit of someone else.

In certain cases, such as when a minor receives a lawsuit settlement, the check may be made out to the parent but intended for the child’s benefit. To ensure that the funds, even though deposited under the parent’s name, are used solely for the child’s needs, the parent would endorse the check as “FBO [child’s name].” This endorsement serves as confirmation that the funds are designated for the child’s use.

Mobile deposit endorsement

With the increasing popularity of mobile banking, it has become more common to conveniently deposit checks using a banking app. When making a mobile check deposit, simply write “For mobile deposit only” after your signature. Some banks may also require you to include their name in the endorsement area. Remember only to make mobile deposits through your bank’s official app to ensure the safety of your funds, avoiding third-party applications.

Business endorsement

When making a check payable to a business, the endorsement should accurately reflect the business name. Usually, a representative of the business writes the business name, their title, and then signs the check, thereby confirming the deposit into the business account.

Conditional endorsement

Conditional endorsements are relatively uncommon but highly specific. If you wish to link the validity of a check to a particular condition, you would specify the condition after indicating the payee’s name. For instance, you could write “Pay to the order of [full name],” followed by “Upon satisfactory completion of repairs,” and then sign it. This indicates that the check should only be accepted if the payee can demonstrate that they have completed the specified repairs.

Due to their complexity, several banks may decline checks with conditional endorsements. Additionally, there is a possibility of disputes arising from the stated conditions.

Bottom line

Endorsing a check is a relatively simple process that involves signing in a designated area. However, it’s important to be aware of different methods of endorsement that offer varying levels of flexibility and security.

As a rule of financial security, it is advisable to endorse the check only when you are ready to deposit it. This reduces the risk of it getting lost or falling into the wrong hands. By following this practice, you can ensure a smoother and safer transaction.

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