Why I Still Write Paper Checks
I know plenty of people who write essentially no paper checks any more. I know students who pay everything with debit cards. Others manage their financial lives with electronic payments. I do neither. I get by with a mix of cash, credit cards, and paper checks.
Now it's really just a matter of inertia. I used to have some reasons for doing things this way, but they've all been superseded by events:
It used to be that writing checks produced float — the time between you handing over your check and your bank debiting your account. Back in the early 1980s, when interest rates spiked up over 14% and paper checks had to be flown back and forth across the country to be presented at your bank for payment, float was a big deal. (See also: Avoid Bank Fees)
Even for ordinary people it could be a big deal. Let's say your mortgage payment was $1,000. If you had your mortgage at an east-coast bank and you paid it with a check drawn on your west-coast money market fund, it could easily take five business days for your check to clear. At 14%, you'd be earning 38 cents a day, so the float could make you $1.92 (even $2.68 when the weekend lined up right and you got seven days of float). That's $2 a month of free money, just from the float on one bill! Multiplied across all your bills and twelve months a year, float could easily add up to $100 a year.
For businesses, it was a much bigger deal. If could increase your float by one day, you could add $140,000 straight to your bottom line for each $1 million worth of payments you made per day. There were consulting firms to help you locate the right bank for your checking account (that is, the bank that was most remote from whoever you made payments to).
Nowadays, of course, it makes little difference. Between Check 21 and the various kinds of Automated Clearing House (ACH) check truncation, checks usually clear almost immediately. You're lucky to get two days of float. Plus, interest rates are near zero, so there's really no point.
There was a time, long ago, when the only way to get money out of a checking account was to present a check for payment. Even the account holder did it that way: He came in to the bank with a check made out to "Cash" and presented it for payment.
Those were the good ol' days. The only way a thief could steal money from your account was to forge a check — either modify a real check or else print checks with your account number and then forge your signature on them. Checks were printed on "safety paper" to make such forgeries more difficult to do and easier to detect.
You got the actual paper check returned to you after the bank had paid it — with the word "Paid" stamped across the front. That served as proof of payment. If the check was a forgery, you had the evidence. (It was also kind of interesting, because you could see all the endorsements on the back. You could tell if someone had just deposited the check into their own account or signed it over to someone else. You could also see all the banks it had passed through on its way to your bank.)
For a time, when ACH debits were just starting to take off, I made a point of never authorizing an automatic debit to my account. I figured it would make it easier to deal with a theft of that sort — I wouldn't have to argue about whether a particular transaction was or was not authorized, because I could just make a blanket statement: No automatic debits were authorized.
Nowadays, of course, practically every transaction that hits your checking account is an automatic debit of some sort — even the ones that you initiate by writing a paper check. There's no way to prevent it; if you could, it would just make your checking account worthless.
Errors, and Fixing Them
I was actually an early adopter of electronic banking back in the early 1980s. There wasn't an "automated clearing house" in those days. Any kind of automated payment needed to be negotiated individually by your bank and whoever you were trying to pay. The same was true of direct deposits.
I ran into a number of errors in those days, including a direct deposit failure that delayed my paycheck for several days. My roommate at the time had a mortgage payment go similarly astray, causing more than a little stress. Perhaps it was a reaction to those early errors that prompted me to just stick with paper checks.
Nowadays the automatic systems are probably more reliable than the paper systems, and there are actually pretty good rules to protect you from errors and unauthorized transactions (although only if you check your statement and tell the bank if there are any).
I'm Not the Only Luddite
I suppose there are plenty of other people who still write paper checks out of simple inertia. But there's one group that has a real financial interest in paper checks: the companies that print checks. One of them, Deluxe Corporation, has started an ad campaign called "Stand Up for Your Right to Write Checks," complete with a mildly amusing video:
The video shows someone paying with a check at a convenience store counter. Even I don't try to do that any more. I did continue to write checks at the grocery store long after I'd quit using them at other stores, but I finally switched to credit cards about three years ago. (I long ago quit carrying a checkbook around with me, because the only place I ever write checks any more is at my desk.)
Still, the general message — that the payer ought to have the choice of how he pays — is one that resonates with me. Any business that sends me a bill is going to get paid by check. If they can't deal with that, they're not going to get my business.
How about you guys? Anybody else out there still paying their bills with paper checks?
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