Travelers Checks – Definition, History, Features, Use | How it works?

Travelers Checks Definition Features and Use
Travelers Checks Definition Features and Use

Travelers Checks Meaning, Definition : Travelers Check is a medium of exchange that can be used as an alternative to hard cash. As per the name, travelers checks are used by people on vacation in overseas countries.

Travelers check is a convenient and safest mode of payment and is denominated in number of currencies. If traveler’s check is lost or stolen, it may be refunded.

They are issued for fixed amount, designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege. Here in this article, you will get to know how travelers checks works, history and features of travelers check.

Travelers Checks – All You Need to Know

Travelers Checks Definition Features and Use
Travelers checks are issued for fixed amount, designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.

History of Travelers Checks

Travelers check was first issued on January 1, 1772 by London Credit Exchange Company. Thomas cook issued ‘circular notes’ in 1874 that operated like travelers checks.

American Express Travelers Check was introduced by employee Marcellus Flemming Berry, after company president JC Fargo faced problem in obtaining funds with a letter of credit during a trip to Europe in 1890.

Till 1990s, travelers check became the popular way people took money in foreign countries. After that, availability of debit, credit cards and ATMs  led to significant decline in use of travelers checks.

American Express, Visa and AAA are the companies that still issues travelers checks.

Features of Travelers Checks

The main features of travelers checks are :

  • Safe and secure – Travelers check are more safe and secure than cash. They eliminate the risk of carrying cash. If check is lost or stolen, it can be replaced by new one through issuing company.
  • Ease of Use – Travelers checks are easy to use. There are thousands of businesses that accept travelers check for sale of goods and service. You can also exchange it for money at exchange outlets. It can be used for payment at many international hotels, restaurants, retail outlets, schools, colleges or other places without any commission or fee.
  • No Expiry – The key feature of travelers check is that it comes without any expiry date.
  • No identity theft – Travelers checks are not linked to customer’s checking account or line of credit. Thus, it protect you against the risk of identity theft while using them for payment.

Use of Travelers Checks

  • Purchasing for later use

Travelers checks work on the principle of purchasing for later use. They can be purchased from banks or agencies. After obtaining the custody of check, purchaser need to sign immediately each check.

Purchaser will receive a receipt and some other documents which should be kept in a safe place other than where they carry the checks.

  • Cashing Travelers checks

You can cash the travelers checks at any bank, merchant outlets or foreign exchange. However, you must acknowledge, whether they accept the travelers check.

Merchants and other businesses accept travelers checks as currency, provided the original signatures on the check matches the signature done at time they are cashed for payment of goods or services.

  • Denominations and change

Travelers Checks are available in several currencies – USD, CAD, Pound sterling, Japanese Yen, Chinese Yuan, Euro and denominations usually being 20, 50, or 100 (x100 for yen) of whatever currency.

They are sold in pads of five or ten checks. For example, 5x €20 for €100. Travelers checks don’t have any expiry date so unused checks can be kept by purchase to spend at anytime in future.

The purchaser of a supply of travelers checks effectively gives an interest-free loan to the issuer, which is why it is common for banks to sell them “commission free” to their customers. The commission, where it is charged, is usually 1–2% of the total face value sold.

Any change for a purchase transaction would be given in the local currency.

  • Deposit and settlement

Like normal checks, travelers check will also be deposited to bank account.  In USA, if the payee is equipped to process cheques electronically at point of, they would still take custody of the cheque and submit it to a financial institution, particularly to avoid any confusion on the part of the purchaser.

How Travelers Checks works ?

Like regular check, travelers check also has a unique check number or serial number.

Issuer of the travelers check unconditionally guarantees the payment of the undersigned value, irrespective of the check being fraudulently issued or lost or stolen. This means that the travelers checks are never bounced unless the issuer becomes bankrupt or goes out of business.

The payee receiving the check, can deposit it with the Bank, as done in the case of ordinary checks and can get the payment credited to his account.

Parties involved in travelers check transaction are –

  • Issuer or Obligor – An organisation which produces the travelers check
  • Agent – Bank or any other party that sells the check
  • Purchaser – Person who buys it to use
  • Payee or Merchant – a person to whom the travelers check is handed over to make payment for goods or services.

If customer reports a check lost or stolen, issuing company cancels the check and issue new one.

Travelers checks were the once most popular mode of payment until the introduction of debit card, credit cards and ATMs. Due to safety and security features, they were most widely used in making payment on vacation overseas. In 2005, American express released the AMEX Travelers Cheque card, a stored value card that serves the same purpose as a travelers check. But It can be used as credit card. It discontinued the card in 2007. After that, a number of companies went on to issue prepaid debit cards or stored value cards that can be used at shops and ATMs.


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