Traveler’s Check

What It Means

A traveler’s check (sometimes spelled “cheque”) is a specialized kind of check (a written order to pay) that may be purchased from a bank or other financial institution, at an AAA (American Automobile Association) office, or at other travel service offices in preset denominations ($10, $20, $50, $100, and higher). Purchasers can then spend the checks elsewhere (they are often bought for use internationally) as cash. Traveler’s checks can be used to pay for hotels, restaurants, train tickets, souvenirs, and other purchases. They can also be exchanged for the currency of the country you are in at banks and money-changing bureaus, although there is usually a small commission fee for this service.

The primary benefit of traveler’s checks is that they are protected against loss or theft. At the time you purchase your traveler’s checks, each one should be inscribed with your signature on the specified line. Later, when you use the check to pay for something, you must counter-sign the check on a different line to endorse it, and the signatures must match. Usually you are also required to show your passport or other photo identification bearing the same signature. Thus, if the checks are lost or stolen, they cannot be spent by someone else. Furthermore, each check is identified by a serial number; as long as you can produce a record of those serial numbers (you should keep this record separate from the checks themselves), the lost or stolen checks can be replaced.

Traveler’s checks have long been favored as the most convenient and reliable way of carrying money when traveling in foreign countries, although the rapid growth of electronic banking has dramatically diminished their use since the mid-1990s.

When Did It Begin

Prior to the invention of traveler’s checks in the late eighteenth century, travelers often avoided the risk of carrying large amounts of cash by carrying a letter of credit from their bank. A letter of credit guarantees that its holder has the funds to pay for his or her purchases. By presenting a letter of credit, the traveler assured merchants that they could submit bills to the traveler’s bank and depend on receiving payment for goods that were sold. A traveler might also present the letter for credit at a foreign bank in order to obtain cash (and the foreign bank could expect to be reimbursed by the traveler’s bank.) Letters of credit were not universally accepted, however, especially outside of major cities.

Robert Harries of the London Exchange Banking Company in England is credited with devising the earliest prototype of the traveler’s check to replace the traditional letter of credit in 1792. Originally introduced as “circular notes”, these checks were issued in set denominations and guaranteed against loss and theft; they were accepted in about 90 cities around the world. In another, later effort to transcend the limitations of letters of credit, the modern traveler’s check (which requires a countersignature) was invented by Marcellus Flemming Berry for the American Express Company in 1891.

More Detailed Information

American Express remains the largest provider of traveler’s checks in the world. American Express traveler’s checks may be purchased at American Express offices or at many banks. Another major provider of traveler’s checks is Thomas Cook, a British banking and tourism company. Visa and MasterCard (the two most prominent brands of electronic payment card, which include credit and debit cards) also issue traveler’s checks. Some companies now offer dual-signature traveler’s checks so that the same checks may be used by two companions traveling together.

Traveler’s checks are available in a number of currencies, including American dollars, Australian dollars, Euros, British pounds, and Japanese yen. If a check is used to make a purchase that costs less than the denomination of the check, the traveler can expect to receive his or her change in the currency of the country he or she is in. The merchant, exchange bureau, or other payee who receives a traveler’s check may redeem the check by depositing it into his or her bank account. The check is then settled, or cleared, with the traveler’s check issuer, much in the same was as other checks are cleared. Traveler’s checks do not expire, so unused checks may be held by the purchaser indefinitely until he or she has occasion to spend them.

For the bank or other issuing institution, traveler’s checks amount to an interest-free loan: the purchaser of the traveler’s checks has given cash to the bank and will not spend the checks for days, weeks, or even months in the future. Because of this benefit, many banks will issue traveler’s checks to their account holders without any additional commission charges. When a commission fee is charged, it is usually between 1 and 4 percent of the total value of checks purchased.

Recent Trends

With the rapid expansion and advancement of electronic banking since the mid-1990s, the use of traveler’s checks has declined significantly. Now travelers can get cash on demand almost anywhere in the world simply by putting a bank card into an ATM (automated teller machine), entering a PIN (personal identification number), and selecting the amount of local currency they desire. Travelers can also make many purchases directly using a debit card (an electronic payment card that withdraws funds directly from a personal bank account).

To compensate for the diminished popularity of traveler’s checks, some companies (including American Express and Travelex Worldwide) now also sell traveler’s check cards. These are reloadable prepaid plastic payment cards that function much like a debit card, within certain limits. American Express, for example, charges a one-time issuance fee of $14.95, requires an initial minimum deposit of $300, and allows a maximum prepaid balance of $2,750 on their traveler’s check cards. The primary benefit of these cards over regular debit cards is an added level of security: they are not linked with your bank account and can be replaced if lost or stolen.