What Does It Mean When a Check Is Cancelled?
The Internet has changed the way people all over the world do business. It has also aided in making the financial sector more up-to-date. Customers can take advantage of the flexibility that comes with online banking to perform a variety of banking transactions from the comfort of their own homes. As a result, cheques and other forms of manual processing that were once integral to banking have all but disappeared.
However, it's imperative that you comprehend the significance of a cancelled cheque and the scenarios where having one could prove useful.
The meaning of a voided check
A cancelled cheque is one that has two parallel lines across the design. You should also write the word "cancelled" between these lines. No signature is required on the cancelled checks. Information such as account numbers, account holders' names, branch names and locations, MICR codes, and IFSC codes can all be gleaned from the back of a cancelled check.
It takes at least two people to cash a cheque. Both the drawer and the drawee are included here. The person who writes a check is known as the drawer, and the recipient of the funds is known as the drawee. Payees are those who are obligated to cover the amount written on the cheque.
When do you need a canceled check?
A cancelled check is required for the following transactions:
Verification of Identity and Eligibility
You've probably heard of "know your customer," abbreviated "KYC." Financial institutions must perform a procedure known as "Know Your Customer" (KYC) to make sure their clients are acting lawfully when dealing with money. When investing in stocks, mutual funds, or other investments related to the stock market, a cancelled check is required as proof of identity and banking credentials. This form of identification is typically required when dealing with financial institutions such as banks.
Services for Electronic Clearance
With ESC, you can settle account balances and conduct other financial transactions electronically, eliminating the need for physical documents. This is a system whereby a company or investment firm will routinely (monthly, quarterly, semiannually, or annually) deduct a set amount from your savings account. You may have automatic bill pay set up for utilities like electricity, water, and internet. A cancelled check may be required when setting up an automatic withdrawal from your bank account by a supplier or brokerage firm. This information will be made available to the service provider or investment firm, which can then enter it into the ECS system to enable timely automated withdrawals.
We frequently make purchases on credit and spread out the payments over time. There are a variety of loans that offer different ways to make monthly payments (called EMIs). In order to finalize the paperwork associated with assigning recurring monthly payment options, banks and businesses require a cancelled cheque.
Depository Receipt Account
Shares can be kept in electronic form in a Demat account. However, you can't just walk into any bank and ask for one of these accounts. A form, along with identification and proof of residence, will need to be submitted. Furthermore, a cancelled check is necessary. It will be sent to a stock brokerage along with other relevant documentation. The company will use the information from the check to initiate debits and credits to the Demat account at predetermined intervals. All of your financial dealings will be handled digitally once your Demat account is linked to your savings account.
Withdrawing from your EPF
To withdraw money from your EPF account after it has matured or before the withdrawal date, you will need to fill out a form in its entirety and submit a cancelled check. The Employees' Provident Fund Organization (EPFO) will deposit the money into the account you specify on the cheque.
Creating a New Bank Account
When opening a bank account, you must include a cancelled check among other documents. A checking or savings account might require this.
The basic principles of insurance and its potential uses are well-known to us all. When you buy health, life, or money-back insurance, you'll need to provide a cancelled check. Each month, your bank account will be debited by the insurance premium. When purchasing insurance from some companies, a cancelled check may be required.
One can use a personal loan for anything from paying for college to paying for a wedding to paying for a down payment on a house. Currently, there is a need for a commercial lender who is willing to deal exclusively in cash for loans. When you get a loan, the money is deposited directly into your account. That's why they need a voided check so they can direct-deposit the funds into your account.
Cancelling a Check: How to Write It
A cancelled check that you write yourself is acceptable to include with your applications. Here are the basic steps to follow if you need a cancelled check:
- Get out your chequebook and write a fresh check. The cheque does not require your signature.
- Draw two parallel crossed lines across the check with a blue or black pen. Both points must be connected by the lines. Make sure there's plenty of room for writing between the lines.
- Between those lines, type in all capital letters: "CANCELLED." Lowercase letters are acceptable.
- No one should sign a voided check. Financial institutions and other organizations may formally request your signature on various documents. It's smart to double-check with the bank's management before signing anything. You have the right to request an explanation in writing if you have doubts about the validity of the signature request on your cancelled check.
Due to the wealth of information contained on a cancelled check, it can be used in a variety of fraudulent ways.
- Bank identification number
- Owner's Name on Account
- IFSC Code
- MICR Code
- Brand of Bank
- ATM machine
With this information, fraud of some kind is possible. If you sign something, a fraudster could potentially make a fake and use it against you. Thus, it is risky to sign your cancelled check and send it in the mail. You have the right to always request a statement or declaration from your bank before signing the cancelled cheque.
What do the various types of voided checks serve?
In some ways, canceling a cheque is as simple as some might think, but there are still several steps that must be taken. Without these safeguards, whoever receives your cancelled check will have free reign over your entire bank account.
Throw out a check
A cancelled check must always be marked with two parallel lines and the word "Cancelled" written in the space created.
Choosing a Pen Color
Since many people may get confused about which color to use, keep in mind that you can only cancel a cheque with a blue or black pen.
- Cheques that have been cancelled with both a Blue Pen and a Black Pen will be returned unpaid.
- The check will be returned if you try to cancel it with a Green, Red, or any other colored pen.
The Danger of Cancelled Checks
People continue to be concerned that submitting a cancelled check poses a security risk. No need to worry about this, as voided checks can no longer be used to withdraw funds.
Endorse cancelled check.
Payees typically sign and present cheques to the recipient or organization. Cancelled checks, on the other hand, do not require your signature.
Make use of only two lines
Occasionally, a borrower will quickly cancel a check by drawing two parallel lines across the check's face. keep in mind that this is not going to cut it for the loan or EMI process unless the words "cancelled cheque" are written on the cheque as well.
In order to complete tasks like "Know Your Customer" (KYC), "EMI," "Electronic Clearing Service," "Demat," "Personal Retirement Account Withdrawal," "Open Bank Account," and "Know Your Customer," a cancelled check is typically requested.
If you need to cancel a cheque, no bank can do it for you, but they may give you a new cheque leaf to write a new one on.
Never put your signature on a cancelled check because it could be used fraudulently. You are not required to provide a cancelled check or a signed copy of the check.
A cancelled check poses a security risk because it reveals details about your bank accounts that could be used by criminals. This information includes your IFSC code, account number, branch location, MICR code, and more. Check cancellation, on the other hand, is completely safe.
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