What is Check Cashing?

Let’s start with the basics of check cashing. A check is a document that promises someone they’ll receive a certain amount of money from you. When you write a check, your bank is ordered to pay the specified amount from your account to the person whose name is specified under “Pay to the order of,” also known as the payee.

Check cashing is when you take the check to a bank or alternative check cashing service to obtain its value in cash.

With the rise of online banking, many U.S. customers rarely use paper checks anymore. But for non-traditional customers, check cashing services can be an important lifeline.

According to the FDIC, about 5% of the U.S. population is “unbanked,” meaning they don’t have a bank account. Another 13% is “underbanked,” meaning they have access to a bank account of some kind but are still using alternatives like check cashing services. While 5% may sound like a small number, it represents 10.5 million people who don’t have any bank account.

If you don’t have a bank account or don’t have easy access to it, there are other places that will convert a check into cash for you. Let’s look at some alternatives as well as the pros and cons of using a check cashing service.

How does check cashing work?

When using a bank to cash a check, there may be a processing delay until you can get the cash. Delays and any processing fees will depend on the bank and the check amount.

A check cashing service, alternatively, is not a bank. It’s a business that will do simple transactions like check cashing, money orders, payday loans, or bill payments – for a fee. These services allow someone who does not have or can’t access a bank account to get cash for their check.

With a service, the payee simply takes a check into a check cashing place, shows a government ID, and walks out with their money – minus the service’s fee – a short time later. To find a location, just search online for “check cashing near me” or “nearest check cashing place.”

Check Cashing Alternatives

There are additional check cashing alternatives beyond banks and check cashing services.

• You can ask a bank to cash a check even if you aren’t a member; some banks provide this service.
• If you aren’t taking advantage of a bank account, you may be missing out on the advantages a bank offers while costing yourself unnecessary fees. Even if you have poor credit or a less-than-perfect financial past, some banks offer what’s called a “second-chance” checking account. While these accounts aren’t available at every bank, this is worth a look.
• With an account, you can deposit checks using a mobile app without ever going to the bank, which could be a major advantage if you don’t drive, live further from a bank, or work an unusual schedule.  
• An account also enables you to have paychecks from your employer directly deposited into your account, so you don’t have to worry about getting to the bank.
• Some banks will cash a check and put the balance on an ATM card for you, so you don’t have to carry around a large amount of cash.
• The bank issuing the check (the check writer’s bank) will often be willing to cash it for you.
• Many common retail chains will also cash checks for a fee, including Kroger and Wal-Mart.
• If you need money instantly for an emergency, it might make sense to consider an installment loan.

Pros of Check Cashing Services

There are advantages to check cashing services in some circumstances and for some people. Here are the pros:

Access. Check cashing services offer important access to this service for those who are underbanked or unbanked.

Instant funds. These services offer instant access to cash without the waiting periods some banks have.

Extended hours. For those who work non-conventional shifts, check cashing services and alternatives may offer convenience. They are often open later in the day, whereas many banks have limited weekday hours.

Locations. Sometimes check cashing services are available in areas without access to brick-and-mortar banks.

Cons of Check Cashing Services

Fees. Fees are certainly the chief con of check cashing services. They can range from just $1 up to 5.99% of the check amount, which can add up to a lot. Particularly for those on a limited income, these fees can eat away at the ability to save or even pay bills. If you’re thinking of using a check cashing service, be sure you understand the fees and costs beforehand.

Cash risks. It’s not the best idea to carry large amounts of cash around in your pocket. You could lose bills, or worse yet, be a target for theft.

Cycle. There’s nothing wrong with using a check cashing service in a pinch or if you need instant cash, but it doesn’t make good financial sense to use them all the time. Don’t get in the cycle of using them regularly or you’ll be losing a percentage of your income when a bank could help you for free.

No FDIC protection. While funds in a checking account should be insured by the Federal Deposit Insurance Corporation (FDIC), you have no safety net for your money when you use a check cashing service.

No relationship/credit boost. When you use a bank, you build a relationship – and a credit record. If you use a check cashing service and never deposit your money in an account, you may have no credit record. Since your credit qualifies you for everything from housing to credit cards to car loans, having a poor or non-existent credit record can make life challenging.

Check Cashing Key Takeaways

Check cashing services meet an important need for millions of unbanked and underbanked people, but you may not want to rely on them in the long-term. If possible, look into establishing a checking account with a bank and handle your cash needs through them.

If you are facing a debt problem, talk with a non-profit credit counselor who can help evaluate your budget, income and expenses and work with you on how to avoid debt. Credit counseling and debt management/debt consolidation are also worth exploring if you are in a difficult situation.

Learn more about Check `n Go’s check cashing services.