Banking Basics

What is Restrictive Endorsement of a Check



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Restrictive endorsement of a check is a way to put a higher degree of security of a check you endorse. By adding a restriction on how the check can be further used, this is another layer of protection to avoid fraud or theft.

Basically what this means is that when you sign (or endorse) your name on the back of a check, you specify the terms on how the check can be transferred to another party, deposited or paid out.

You might be wondering why a restrictive endorsement is even useful in this day and age when direct deposit and electronic transferring is available. There are several reasons why this method of endorsing is still useful.

Even in this digital age of electronic banking, paper checks do still have a useful purpose in society. There are still people who are paid a regular paper paycheck and don't have the option for direct deposit. Other people may not have a bank account and prefer to use money orders and/or pay for things in cash.

Paper checks are also still used to pay bills, give money as gifts or make donations. In any of these scenarios putting a restrictive endorsement on the back of a check will ensure the money is routed in a precise way.

Restrictive endorsement limits what can be done with a paper check. By putting a restriction on the back, the bank must honor exactly what you've written or if you've endorsed the check to someone else, the person must follow your directives.

Here are some examples of how you can use restrictive endorsement:

*Puts Stipulations on the Check

What this essentially means is that you determine the circumstances of check cashing. Do you want it paid to a specific creditor and only for a particular purpose? If so, you write this directive on the check.

Probably the most popular restrictive endorsement used by most people is "For Deposit Only". What this means is that the check can only be deposited and the person bringing or mailing the check cannot cash the check and receive cash in hand.

The money must be deposited into a bank account which limits any further endorsement occurring. Some people add a specific bank account number to ensure the check goes in a chosen account, but others often do not because of privacy issues.

*Limits Who Can Endorse the Check

This kind of endorsement means that the individual you designate by name after you add your signature is the only one who can either cash or deposit the check. If anyone else attempts to endorse their name under your signature with a restrictive endorsement designated, then this would be fraud.

Often people use this form of restrictive endorsement to ensure only the person they want to have the money can have rights to cash the check; it is used as a safeguarding measure.

*Puts Strict Limits on how the Check can be Used

Without putting a restrictive endorsement on the check, anyone who happens to come across your signed check would be able to legally cash the check. A restrictive endorsement limits the capabilities if the check is misrouted, lost or stolen.

Why do people use restrictive endorsement?

Legal protection is probably the primary reason people opt to use restrictive endorsement. It is safer and a good option to use if you are mailing checks to the bank for deposit; especially if it crosses international borders.

While paper checks are slowly going extinct, they still have a lot of life left in them. If you either write or receive paper checks, it is helpful to understand what restrictive endorsement is and how it is beneficial to you.

More about this author: Leigh Goessl

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