Blank Endorsement

What Is a Blank Endorsement?

A blank endorsement is a signature on a financial instrument such as a check. No payee is specified, so any holder of the instrument could claim payment. The signature essentially turns the instrument into a bearer security. That is, it is not registered to any individual but is payable to the person who possesses it.

Blank Endorsement Explained

The most familiar example of a blank endorsement is a check made payable to cash and endorsed on the back with the signature of the account holder. It's wise to wait to sign that check until getting to the bank.

Blank endorsements are much riskier than pay-to endorsements. If the instrument is lost or stolen, it can be cashed or deposited by the finder.

Other Forms of Check Endorsement

In addition to blank endorsement, there are two other major types of check endorsement.

One is a restrictive endorsement, in which the party writing the check notes “For deposit only” on the first line of the back of the check and then signs underneath. This form of a check may only be deposited into an account with the name specified on the check. Some banks prefer a check with a restrictive endorsement to have the recipient’s account number written clearly on the check, while others see this as a security risk.

A special endorsement, like a standard bank check, includes the name of the payee as well as a signature.

The other type of check endorsement is called a special endorsement, and is used by a payer to give the check to a particular individual. Instructions for a special endorsement are as follows: Write “Pay to the order of [name of recipient],” and then sign below.

You'll notice that this is the usual language on a printed check provided by a bank to its checking account customers. The individual named is then the only person who can cash or deposit that check.

Blank Endorsements and Depositing Checks

Most deposits into a bank savings or checking account qualify as transaction deposits, meaning that the funds are immediately available. Certain checks take a full 24 hours to clear entirely, although a portion could be available for immediate use.

One exception to this rule is a certificate of deposit (CD), a savings account that pays a relatively high interest but restricts withdrawals for a time period lasting from 30 days to five years. In general, the owner of a CD account must give notice prior to withdrawing funds before the time limit expires. Even then, the bank may charge a fee and even a penalty for the early withdrawal.

Why All the Rules

Customer deposits, including checks using any variety of endorsement methods, provide banks with the ready cash to make loans. Commercial banks make money by providing loans and earning interest income from those loans.