What Are Certified Funds?

What are certified funds, how do they work, and what is their purpose? Read this article to learn everything you need to know about certified funds.

Updated February 2024

Fact checked by Cathy Gresham

What Are Certified Funds?

While the term “certified” funds may initially be confusing, the idea is very straightforward. This essentially means that you can get a “certified payment” via places like banks for a small fee. You will then be able to use that payment method to pay someone and that person will have increased confidence that the money is actually there (in your account) to fulfill the payment (e.g., that a check will not ‘bounce’). In other words, the bank or financial institution certifies that the money is actually there to make the payment.

The concept is primarily to ensure that money is kept safe, but the implementation of this is not always easy. Money orders and certified checks are two basic types of certified funds, but there are many others, too.

Keep reading to learn about certified funds in more detail, including how they work and their purpose. We will also cover four types of basic certified fund types, so you get a better idea of what we’re talking about.

What Are Certified Funds?

Certified funds are a popular way of spending money in a way that ensures that the payment is honored – at least in theory. Think of it as a way to keep payments secure. The best way to describe it would be with the following scenario:

You want to purchase an item from a private seller in another state. The seller doesn’t know you, so does not want to accept a personal check and give you the item, for fear that the check may not clear. So you instead get a personal, certified check to pay them. While you could use a regular check, there may be a delay since the seller might want to wait to give you the item until the check actually clears. You can see how this creates an uncomfortable situation for both parties. 

To get around this issue, you could get a certified check from a bank. This is done by heading to the bank and simply asking the teller for a certified check for a specific amount of money. They will ensure that you have the funds to cover the cost and give you the check. This check must be signed by you in front of the teller, and it will go to a third party (e.g. the seller).

The bank will then place a hold on your account for that designated sum of money to ensure the safety of the money. Once the check has been cashed, the hold will be lifted.

How Do They Work?

How Do They Work?

Simply put, when you ask for certified funds, your bank will hold the designated amount of money in your account and transfer it to the payee. This allows the payee to deposit the money into their own account, or cash the check to use. A bank will only be able to grant certified funds if the individual asking for it has the funds already available in their bank.

The bank will carry out a check to ensure this before making the individual sign a check for the designated amount for the money to be held and later transferred to the payee.

What Is Their Purpose?

The primary purpose of certified funds, no matter what kind, is security. Although there will always be issues to deal with in banks and security, this is one of the safest ways to make large payments.

Not only that, but using certified funds is likely to make payments get processed faster, and there will be more trust between you and those you work with. You and other sellers won’t need to wait for a check to clear when selling expensive things, so it makes everyone’s lives easier.

A quick word of caution

While certified funds like cashier’s checks typically have additional security measures, like watermarks, they still can be forged. Make sure you still trust the party paying you with a cashier’s check, and consider still waiting to release goods or services paid for with a cashier’s check until the check clears. Especially, if this is the first and only time you are making a transaction with this party. 

Four types of certified funds

1. Cashier’s checks

Cashier’s checks give recipients more security than other options. In this situation, the payer is essentially removed from the equation, and the bank takes on the responsibility instead. The funds are deducted from the payer’s account before the check is honored to ensure that the payment is done.

Cashier’s checks also often clear the next business day, as opposed to personal checks, which may take several days to clear.

2. Certified checks

This type of check allows money to be securely transferred from one party to another. Here, the bank will need the individual to sign a check for a specific amount. The bank ensures that the money is currently available, and places a hold on the account for that amount. This means that the person who is owed the money is almost 100% guaranteed to get the money they are owed.

3. Money order

This option is like a short-term certificate for a temporary deposit. A sum of cash will be given to the bank or financial institution, and the institution will then issue a money order, which is then redeemed with the cash issued.

Money orders are usually available from a wider variety of retailers compared to other payment methods. It can even be issued or redeemed in places such as many grocery stores and even gas stations. Most places that issue money orders have a limit of around $1,000. You can also have money orders issues at the post office for a very small fee. 

4. Letters of certification

These are popular options for real estate closings. A letter of certification is a letter issued by a bank stating that they will pay a buyer the guaranteed sum.

Make sure you trust your counterparty 

Like everything, certified funds also have their own problems. In many cases, it’s possible to forge the necessary documents if you are skilled enough. 

When this happens, it can be some time before a seller even realizes that there has been a problem. The money will be uncollectible, and the seller will not get the money that they are owed.


Final Thoughts

Certified funds are a means of making payments more secure, especially for large sums of money. Depending on the option you use, the process for getting and accessing payment may be different.

For some transactions, payment through certified funds methods will be required by the seller. In other cases, as a buyer it may be helpful to proactively suggest to the seller that you will make payment through certified funds, to give increased confidence to the seller that you are a serious buyer. 

Editor's Note:

At Personal Finance Guru, we want to help you maximize your lifestyle through personal finance. You can trust the integrity of our independent financial advice. Our opinions our own and have not been provided, review, approved, or endorsed by any advertiser or financial product provider. To support and grow the site, however, we may receive compensation from the issuers of some products.

Author bio:

Cody Beecham

Cody Beecham


Cody is the founder and owner of Personal Finance Guru. His day job is as a management consultant at one of the Top 3 firms (think Mckinsey, Bain), where he advises Fortune 500 C-suite clients on their most important and pressing business problems. He completed his business education at Harvard Business School. 

After seeing the lack of personal finance education for regular people, Cody started the website with the mission to provide everyone access to information that will help them achieve their financial goals.

Cody approaches personal finance from a maximalist perspective, shunning typical advice around simply not buying a cup of coffee instead of more effective methods like investing in yourself to quickly grow your income. 

He believes in saving money and investing for the future, but he also knows that you need to enjoy life today. That’s why Cody approaches money with a sense of humor and a positive attitude. He knows that if you’re not having fun while you’re growing your wealth, then what’s the point?

Cody approaches life with the same gusto that he brings to personal finance. He loves to travel and experience new cultures, and he is an avid reader and learner. He also enjoys playing sports (especially tennis) and spending time with his family and friends.