Have you ever noticed a cheque that has two parallel lines on it with a word ‘CANCELLED’ written between them? Such a cheque is called as a Cancelled Cheque. Cancelled cheques are taken by the owner of the bank account as a proof that he/she actually has an account with that bank.
Use of Cancelled Cheques:
- For purchasing an insurance policy
- Opening a Demat account
- For paying EMI’s
- For Electronic Clearance Service. It deducts money from your account if you buy nothing, especially mutual funds.
- KYC for stock investment & mutual funds
- Withdrawing of EPF funds
Before we move forward and tell you in detail about Cancelled cheques, we must also talk about the benefits of using these cheques.
Benefits Of Using Cheques
Cheques are more convenient
You do not need to carry huge amounts of cash and invite trouble for yourself. Cheques are less noticeable and let you transact in a safe and secure way.
Offers better security
Cheques are a safer way to transact than cash. They are secure and cannot be cashed if they are account payee. Also, if a cheque gets stolen or lost, the payment can be stopped by informing the bank.
Cheques can be Post-Dated
Don’t have enough funds right now? You need not worry. You can still issue the cheque and the amount would be deducted on the date mentioned in the cheque. These cheques are issued on a different date and cashed at a later one. So, even if you are expecting funds in your account after a period of few days of issuing the cheque, you will not have to face any problem.
Cheques are Traceable
When you make use of a cheque for any purpose, the bank always makes a copy of the cheque you issue. Thus, in case of any confusion, you can easily prove that the payment was made from your side.
4 elements of a Cheque include:
- Drawer – The person who signs the cheque or the account holder
- Payee – The individual to whom the money is to be paid.
- Drawee – The bank.
- Amount – The money that is being transferred.
What All Information does a Cheque have?
A cheque or a cancelled cheque helps in providing the following information about the account holder.
- Account holder’s Name
- Account number
- IFSC Code
- MICR Code
- Name of the bank and its branch
How a Cancelled Cheque is made?
- The holder of the account is not required to sign or put a date on the Cancelled cheque
- All the account holder has to do is draw two lines on the cheque and write the word Cancelled between the lines.
Difference Between Cancelled Cheque & Returned Cheque
A cancelled cheque is accepted by the bank as it conveys that a person is an account holder with the bank. A Returned cheque, on the other hand, is the cheque which is sent back by the bank into the account in which it was deposited, due to lack of funds.
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Types of Cheques:
1. Open Cheque
An open cheque is an uncrossed check. It is payable if it is presented at the counter of the bank. Open cheques can be an order cheque or a bearer cheque.
2. Crossed Cheque
Crossed cheques are those which have two parallel lines on it. It may or may not have ‘Account Payee’ or ‘Not Negotiable’ written on it. If a cheque is crossed, it has to be deposited in to the payee’s account only and it cannot be cashed at the counter of the bank.
3. Bearer Cheque
When a cheque is not crossed or cancelled and contains the words “or bearer” on it, it is called a bearer cheque. Such cheques are encashed over the counter and the money is given to the person who presents the cheque for payment at the bank counter. Bearer cheques are considered to be risky as money can be taken by any person who gets the cheque, in case it is lost or stolen. Thus, it is always advised to make less use of bearer cheques.
4. Order Cheque
When the word “bearer” appearing on the face of a cheque is cancelled and when in its place the word “or order” is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is to be paid to the person stated therein as the payee, or to any one else to whom it is authorized (transferred).
5. Anti-Dated Cheque
These cheques are those cheques which bear a date that is earlier than the date on which it is presented to the bank. Anti-dated cheques are valid upto three months from the date on which the cheques are issued.
6. Post-Dated Cheque
Post-dated cheques are those which carry a future date or a date that is yet to come. Such cheques cannot be cashed before the date that is mentioned in the cheque.
7. Stale Cheque
A stale cheque is a cheque that is presented to the bank for payment after a period of three months from the date of issue. Banks do not honour stale cheques.
After knowing and reading about cheques, one question that still arises in our mind is can a cancelled cheque be misused?
Even though cancelled cheques have no value, there have been instances where cancelled cheques were misused. Thus, you must make sure to ask for the letter of demand for cancelled cheque before handing it over to someone. You must also keep a photostat copy of the cancelled cheque as a reference or proof.
There are alternatives that are accepted in lieu of cancelled cheques like photocopy of the first page of your bank passbook or copy of your account statement. So, make sure you ask if these proofs would work before handing over a cancelled cheque.
Last but not the least, hand over the cancelled cheque only to a person who is known and trust worthy.