travellers cheque

Traveler's cheque

A traveler's cheque (also traveller's cheque, travellers cheque, traveler's check, or travelers check) is a preprinted, fixed-amount cheque 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.

Usage

As a traveler's cheque can usually be replaced if lost or stolen (if the owner still has the nota, issued together with the purchase of the cheque), they are often used by people on vacation in place of cash. The use of credit cards has, however, rendered them less important than they previously were; there are few places that do not accept credit cards (especially international ones such as Mastercard and American Express) but do accept traveler's cheques – in fact, many places now do not accept the latter. As a result, Travelex now also sells "traveller's cheque cards" which are used like credit cards. In contrast, American Express discontinued their own traveler's cheque cards, announcing they would no longer honor the cards effective October 31, 2007.

Traveler's cheques are available in several currencies such as U.S. dollars, Canadian dollars, pounds sterling, Japanese yen, and euro; denominations usually being 20, 50, or 100 (x100 for Yen) of whatever currency, and are usually sold in pads of five or ten cheques, e.g., 5 x €20 for €100. Traveler's cheques do not expire so unused cheques can be kept by the purchaser to spend at any time in the future. The purchaser of a supply of traveler's cheques 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.

History

American Express was the company first to develop a large-scale traveller's cheque system in 1891, and is still the largest issuer of traveler's cheques today by volume.

American Express's introduction of traveler's cheques is traditionally attributed to employee Marcellus Flemming Berry, after company president J.C. Fargo had problems in smaller European cities obtaining funds with a letter of credit.

However, traveler's cheques were first issued on 1 January 1772 by the London Credit Exchange Company for use in ninety European cities, and in 1874 Thomas Cook was issuing 'circular notes' that operated in the manner of traveler's cheques.

Terminology

Legal terms for the parties to a traveler's cheque are the obligor or issuer, the organization that produces it; the agent, the bank or other place that sells it; the purchaser, the natural person who buys it, and the payee, the entity to whom the purchaser writes the cheque for goods and/or services. For purposes of clearance, the obligor is both maker and drawee.

Use and acceptance

Upon obtaining custody of a purchased supply of traveler's cheques, the purchaser should immediately write his or her signature once upon each cheque, usually on the cheque's upper portion. The purchaser will also have received a receipt and some other documentation that should be kept in a safe place other than where he or she carries the cheques.

When wanting to cash a traveler's cheque while making a purchase, the purchaser should, in the presence of the payee, date and countersign the cheque in the indicated space, usually on the cheque's lower portion (if at a restaurant, it may be helpful to ask the waiter to watch and wait for this to be done).

Applicable change for a purchase transaction should be given in local currency as if the cheques were banknotes.

Several travellers cheques have been created, yet the most accepted travellers cheques are:

Security concerns

It is a reasonable security procedure for the payee to ask to inspect the purchaser's picture ID; a driving licence or passport should suffice, and doing so would most usefully be towards the end of comparing the purchaser's signature on the ID with those on the cheque. The best first step, however, that can be taken by any payee who has concerns about the validity of any traveler's cheque, is to contact the issuer directly; a negative finding by a third-party cheque verification service based on an ID check may merely indicate that the service has no record about the purchaser (to be expected, practically by definition, of many travelers), or at worst that he has been deemed incompetent to manage a personal chequing account (which would have no bearing on the validity of a traveller's cheque).

Black market

One of the main advantage travellers cheques provide, is the replacement if lost or stolen. This feature has also created a black market, where swindlers buy travellers cheques, sell them at 50% of their value to other people (eg travellers, ...) and falsely report their travellers cheque stolen with the company where the cheque has been obtained. As such, they get back the value of the travellers cheque and made 50% of the value as profit.

Deposit and settlement

A payee receiving a traveler's cheque should follow its normal procedures for depositing cheques into its bank account: usually, endorsement by stamp or signature and listing of the cheque and its amount on the deposit slip. The bank account will be credited with the amount of the cheque as with any other negotiable item submitted for clearance.

In the United States, if the payee is equipped to process cheques electronically at point of sale (see: Check 21 Act), they should still take custody of the cheque and submit it to a financial institution, particularly to avoid any confusion on the part of the purchaser.

Loss or theft

Loss or theft of traveler's cheques should be reported immediately to the issuer and to the local police authority. The receipt issued when the cheques were purchased will expedite the refund process.

See also

References

External links

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