What Is Check Cashing?

By Ashley Kilroy. July 15, 2024 · 7 minute read

THIS ARTICLE MAY INCLUDE INFORMATION ABOUT PRODUCTS, FEATURES AND/OR SERVICES THAT SOFI DOES NOT PROVIDE. SOFI LEARN STRIVES TO BE AN EDUCATIONAL RESOURCE AS YOU NAVIGATE YOUR FINANCIAL JOURNEY. WE DEVELOP CONTENT THAT COVERS A VARIETY OF FINANCIAL TOPICS WITH THE AIM TO BREAK DOWN COMPLICATED CONCEPTS, KEEP YOU INFORMED ON THE LATEST TRENDS, AND CLUED-IN ON THE STUFF YOU CAN USE TO HELP GET YOUR MONEY RIGHT.

What Is Check Cashing?

When you cash a check, you receive the amount of cash stated on the check. What are known as check cashing services let you cash all sorts of checks — like payroll, government, or personal checks — and receive your money on the spot, even if you don’t 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.

How Does Check Cashing Work?

Check cashing services can offer a way for those without a bank account to cash a check. Currently, about 6% of all Americans are unbanked, according to the Federal Reserve, meaning they are 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 people’s lives. That means they likely can’t 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. 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 like 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, you’ll pay a fee for this service and leave with your cash in hand, ready to use.

The transaction fee can range between 1% to 12% of the check amount, depending on the particular location. Some check cashing services will cap the fee. For example, Walmart has a maximum fee of $4 for cashing a pre-printed check of up to $1,000 value, at the time of publication, and a maximum fee of $8 for pre-printed checks over $1,000 in value.

Check cashing services are helpful if you:

•   Don’t 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 — like 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 IRS.

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.

Recommended: Paying for Food Delivery With a Checking Account

Average Check Cashing Fees

The fees for cashing a check usually range from 1% to 12% of the check’s 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 pre-printed checks up to $1,000, as noted above. At Amscot, fees for check cashing vary: 9.99% of the check’s amount for personal checks and 2.5% 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, it’s 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 — they can be prohibitively expensive.

•   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 you’re 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

Here’s 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% to 12% of the amount cashed.

•   Locations may try to upsell customers on high-interest payday loans.

•   No opportunities for relationship-building benefits of banks, such as higher rates on certificates of deposit (CDs).

•   No safe storage for money, as funds are not 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. It’s 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.

•   Cashing a check at the issuing bank: If you can’t cash a check at your own bank or credit union (or don’t have a bank account), you could try the bank or credit union that issued the check. You can find their name on the front of the check. Depending on the bank’s 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.

If you are looking for a bank that offers flexible, high-yield accounts, see what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


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FAQ

Are check cashing fees negotiable?

Check cashing fees usually cannot 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 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.


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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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