What Is a Traveler's Check?

A traveler's check is issued by a bank or other organization and is protected against loss or theft. They are issued by many banks around the world in several of the worlds's leading currencies and are usually treated as legal tender, or cash, by most businesses and individuals, even in cases when credit or debit cards are not accepted. Many people use them while on vacation, especially when traveling to another country. Their use, however, is becoming less common with the development of global digital financial networks.

The first institution to issue traveler's checks was a bank in London, England in 1772. Widespread use, however, did not begin until the American Express Company began producing them in 1891. In 2011, they are the largest issuer of traveler's checks in the world. Pre-paid debit and money cards that will work in many countries around the world are making traveler's checks less common.

The payee who accepts a traveler's check as payment for goods or services is protected against fraud by the system under which the checks are purchased and issued. When a person purchases traveler's checks, which can be issued in various denominations of leading currencies, he signs the checks as soon as they are received. A receipt with the serial numbers on the checks will also be issued to the purchaser.

To use a traveler's check, the purchaser must sign the check again, in the presence of the payee, or the person who accepts the check on the payee's behalf. This allows the payee to be sure that the person paying with a traveler's check is the same person who originally purchased it. The fact that the check is backed by funds already transferred to the issuer by the purchaser protects the payee from fraud. The purchaser is protected from theft or loss of their traveler's checks as long as they keep the receipt and, in such a case, can expect a refund or replacement from the original issuing bank or other financial institution.

It is customary to ask to see the purchaser's identification when accepting traveler's checks as a further deterrent to fraud and theft. After accepting a traveler's check, the payee should give change, if necessary, as though they had received cash from the purchaser. The payee may then deposit the traveler's check with his own bank like any other check.