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How do Traveler's Checks Work?

What is a traveler's check and how does it work?

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Traveler's checks are special-purpose checks issued by widely-known banks or businesses. They are designed for use by individuals away from home, where businesses are less likely to accept a personal check.

Unlike a checking account, where the customer's signature is obtained on a signature card or other contract document and is available for comparison to checks presented for payment, traveler's checks carry their specimen signatures with them. Each check is signed by the purchaser when the checks are bought; the purchaser then signs them again (often called countersigning) in the view of the person to whom the check will be transferred (the merchant, bank, hotel, etc.). The two signatures can be compared to deter misuse by third parties if the checks are stolen or lost.

A purchaser often pays a fee to the bank or other organization selling traveler's checks. That fee pays for the service and the costs of processing the checks when they are presented to the issuing company for payment.

With the wide-spread international acceptance of credit and debit cards, demand for traveler's checks is now greatly diminished. However, there are some individuals who still prefer to buy traveler's checks over using plastic, or use them as an emergency money alternative if their credit or debit cards are lost, stolen, inoperative, or simply not accepted. Published on BankingQuestions.com 8/22/07