Digital transactions in recent years have transformed the entire banking sector. With the advent of net banking, credit cards, debit cards and e-wallets, the traditional manual bank work has declined. Even in this era of fingertip banking, a cancelled cheque is a requisite for various purposes like verifying your identity and so on. If you are still wondering why a cancelled cheque is used, read on to know the answers.
Table of Contents
- What is a Cancelled Cheque?
- Uses of a Cancelled Cheque
- How to prepare a Cancelled Cheque?
What is a Cancelled Cheque?
A cancelled cheque is a cheque leaf on which two parallel lines are drawn and the word ‘Cancelled' written in between them.
Nothing else should be written on a cancelled cheque and it need not have your signature on it. However, the cheque will consist of your bank account number, MICR code and cheque number which can be used for the reference of concerned persons.
The purpose of a cancelled cheque is that it should not be misused by anyone and no one can withdraw money without your knowledge.
Uses of a Cancelled Cheque
Below is the list of areas where a cancelled cheque is required for verification.
- Opening Bank Accounts: If you want to open a savings or current bank account, you need to submit a cancelled cheque to complete the process.
- Know Your Customer(KYC): A cancelled cheque has become essential for KYC procedures and documentation. Investment plans like mutual funds, stocks require KYC documents in which a cancelled cheque submission is mandatory.
- Electronic Clearance Service (ECS): Deduction of money from your account using Electronic Clearance Service requires a cancelled cheque.
- EMIs: A cancelled cheque is a requisite for finalizing EMI payments for various types of loans such as home, auto, education and business loans.
- Insurance: Submission of a cancelled cheque is mandatory on the purchase of insurance policies like health, endowment, money back etc.
- Demat Account: A cancelled cheque needs to be submitted to the stock brokerage while opening a Demat account which is essential for stock trading and investments.
- EPF Withdrawal: To withdraw your Employee Provident Fund (EPF), you need to submit a cancelled cheque to the organization you worked with or for the Employee Provident Fund office.
How to issue a Cancelled Cheque?
When someone asks you for a cancelled cheque, don’t be confused as to how to write one. Here are the steps for it:
- Take a cheque leaf out of your recent cheque book
- Do not enter any of your personal information like name, signature, date or amount
- Just draw two parallel lines across the cheque, preferably diagonally
- Write the word ‘Cancelled’ in between the parallel lines
- Your cancelled cheque is ready
Additional Reading : What is a Cancelled Cheque?
These are the above areas where you need to issue a cancelled cheque to complete the process. Though a cancelled cheque cannot be misused, there have been instances in the past of cheque fraud. See that you cancel the cheque carefully and submit it in person to minimize the risks.
FAQs of Cancelled Cheque
- Can someone withdraw money from my account using a cancelled cheque?
No, cancelled cheques shall not be honored in banks and they cannot withdraw money from your account.
- What information from my cancelled cheque will be used by the receiver?
Bankers or insurance companies generally request for a cancelled cheque to confirm your account number, name on the account and branch details to effect an auto-debit or NACH mandate for EMI payments.
- Do I have to sign a cancelled cheque?
No, you need not sign on a cancelled cheque.
- I don’t have cheque leaves on my recent cheque book. Can I use an older one from a different branch?
No, it is advisable to use the latest cheque leaf that has your latest account information.