Since I was writing another article about checks, How To Sign A Check Over To Someone Else, I thought I would share another useful tidbit about checks and banking.
When you receive a check from another person, you should immediately indorse (that is, sign the back of) that check and write the words “For Deposit Only” under your signature. If you want to get fancy, you can put your bank account number under there as well, but you don’t have to.
Why? Because this is what is known as a “restrictive indorsement“, and it puts certain conditions on how that check can be redeemed. By signing the check and putting the magic words “For Deposit Only” under your signature you are basically telling the bank “If anyone else shows up with this check, it’s been stolen, don’t cash it.”
My parents always taught me (incorrectly) that I shouldn’t sign a check until I was ready to deposit it. They told me that if I did sign the check and later lost it, another party could then cash that check. This isn’t quite correct, as the person who cashed the check would still be committing fraud. Still, it might make it a little easier for them.
My parents never considered what would happen if I lost an un-indorsed check – Wouldn’t a would-be fraudster simply sign my name to the check and simply deposit it? Of course they would.
Signing the check immediately and writing “For deposit only” on the back, along with your bank account number, offers you the best protection.