When you cash a check, you receive the amount of cash stated on the check. Check cashing services let you cash all sorts of checks ā like payroll, government, or personal checks ā and receive your money on the spot, even if you donāt have a bank account.
While these services offer convenience and quick access to cash, they typically have high check cashing fees. Read on to better understand how check cashing services work and their pros and cons.
Table of Contents
Key Points
ā¢ Check cashing services allow people to quickly turn checks into cash without needing a bank account, often providing funds immediately.
ā¢ These services typically charge fees ranging from 1%-10% of the check amount, making them a costly option compared to traditional banking.
ā¢ Check cashing services are especially useful for unbanked individuals, who make up about 6% of Americans and may not have access to standard banking services.
ā¢ Common types of checks cashed include payroll, government (such as tax refunds or Social Security), personal, and business checks.
ā¢ While convenient, check cashing services come with risks such as high fees, potential upselling of payday loans, and increased vulnerability to theft when carrying cash.
Cashing checks at an ATM is unavailable for SoFi members. As an alternative, members can deposit checks via the mobile app.
How Does Check Cashing Work?
Check cashing services can offer a way for those without a bank account to cash a check. About 6% of all Americans are unbanked, according to the most recent Federal Reserve report, meaning theyāre not served by a bank or similar financial institution. They lack the kind of checking accounts that serve as the day-to-day financial hub of most peopleās lives. That means they likely canāt walk into a bank branch and get cash for a check.
Instead, they may use check cashing services, such as brick-and-mortar stores like Amscot and Check City, to access cash. These businesses are designed for simple transactions like cashing checks, paying bills, buying money orders, and possibly securing payday loans. You may also find check cashing services available at major retailers, such as Kroger and Walmart.
Check cashing services can also offer convenience to those who have bank accounts. Say you receive a check in your mail on Saturday and would like to cash it to repay a friend on Sunday. Your bank is unlikely to be open, so you might use a check cashing service to complete this transaction.
How Check Cashing Works
Using a check cashing service is typically a straightforward process.
• You present the check and proof of identification.
• Once verified, youāll pay a fee for this service and leave with your cash in hand, ready to use.
The transaction fee may range from 1%-10% of the check amount, depending on the particular location. Some check cashing services will cap the fee. For example, Walmart charges a maximum fee of $4 for cashing a preprinted check of up to $1,000 and a maximum fee of $8 for preprinted checks over $1,000, up to $5,000 ($7,500 during tax season).
Check cashing services are helpful if you:
• Donāt have a bank account
• Need immediate cash
• Live in areas without nearby bank branches or prefer the extended hours offered by some check cashing services
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Common Types of Checks Cashed
There are several common types of checks that can be brought to check cashing services.
Payroll Checks
A payroll check is a type of check that your employer issues, typically on a regular schedule ā such as once a week or biweekly. You can usually receive your paycheck in the mail or in person. Many people opt for direct deposit.
Government or Tax Refund Checks
Government checks come directly from the government, as the name indicates, and can cover various forms of aid, such as financial assistance, grants, Social Security benefits, and unemployment benefits. Another familiar type of government check is a tax refund check from the Internal Revenue Service.
Personal and Business Checks
You can use personal checks to pay bills or send money to friends and family. On the other hand, companies issue business checks for a wide range of business-related transactions. Both types are common and can be cashed at check cashing services.
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Average Check Cashing Fees
The fees for cashing a check usually range from 1%-10% of the checkās value. The exact amount depends on the check cashing service you use, the type of check, its amount, and other factors.
For example, at Walmart, you might pay a maximum fee of $4 for preprinted checks up to $1,000, as noted above. At Amscot, fees for check cashing vary: 9.9% of the checkās amount for personal checks and 2.75% for tax refunds.
Factors Affecting Check Cashing Fees
Several factors influence the check cashing fee, including:
• Type of check: Payroll, government, and personal checks often have different fee structures.
• Check amount: Higher amounts might incur higher flat fees or percentage-based fees.
• Check cashing service: Different businesses will set their own fee schedules.
• Location: Due to local laws, fees for check cashing can vary by state or region.
Risks of Using Check Cashing Services
Before using a check cashing service, itās important to understand the risks involved:
• Upselling high-interest payday loans: Many check cashing places might try to sell you high-interest payday loans. These loans are very risky and expensive, potentially trapping you in a cycle of debt. While it might be convenient to cash your check there, try to avoid any payday loan offers ā they can be prohibitively expensive.
• Being a target for theft: Cashing a check might seem convenient, but leaving the premises with a large sum of cash can be risky. It makes you a target for theft since people know youāre probably carrying cash.
• Getting caught in a problematic cycle: Using check cashing services can trap you in a cycle of fees. It can also mean missed opportunities to build financial stability with a bank or credit union.
Pros and Cons of Using a Check Cashing Service
Hereās a closer look at the upsides and downsides of using a check cashing service.
Pros
• Check cashing services often operate outside of regular banking hours, which can be convenient.
• Funds are typically accessible immediately, without delays or holds.
• They provide essential financial services to underserved and unbanked individuals, allowing them to cover expenses such as rent and bills and access their tax refunds or Social Security checks.
Cons
• Check cashing services charge high fees, usually 1%-10% of the amount cashed.
• Locations may try to upsell customers on high-interest payday loans.
• There are no opportunities for relationship-building benefits of banks, such as higher rates on certificates of deposit (CDs).
• They donāt provide safe storage for money, as funds arenāt insured like they would be in a bank.
Where to Cash Checks for Free
Here are a few free ways to cash a check versus using check cashing services:
• Direct deposit: Direct deposit provides an automated way to get paid. Your paycheck goes straight into your account electronically without needing a physical check or a trip to the bank. Itās hassle-free and saves you from paying check cashing fees. However, you do need a bank account for this.
• Mobile or online check deposit: If you have a bank account, one of the easiest ways to deposit a check is by using your phone with mobile deposit. Usually, you sign into your bank account, snap a photo of the front and back of your check, and deposit it into your account. But keep in mind you may have to wait a day or two to access the deposited funds.
• Check-cashing service at the issuing bank: If you canāt cash a check at your own bank or credit union (or donāt have a bank account), you could try the bank or credit union that issued the check. You can find its name on the front of the check. Depending on the bankās policy, you might be able to cash it there without any check cashing fees.
The Takeaway
Whether or not you have a bank account, check cashing services can provide convenience and flexibility. However, they often charge high fees and present other risks. Understanding these dynamics can help you decide whether to opt for these services or explore alternatives, like trying to cash checks at the issuing bank.
FAQ
Are check cashing fees negotiable?
Check cashing fees usually canāt be negotiated. These fees are determined by the check cashing service and depend on factors like the type and amount of the check.
Do I need ID to cash a check?
Yes, you usually need to provide identification (ID) when cashing a check. However, each bank, credit union, or check cashing service may have different requirements for what qualifies as acceptable ID.
How long does it take to cash a check?
When you visit a check cashing service, you can typically walk out with your funds almost immediately. These services provide rapid access to cash.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
Photo credit: iStock/s-cphoto
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