[ecis2016.org] In this article, we explain the meaning of a cancelled cheque and its importance.
With the growing popularity of digital payments and internet banking facilities, the use of traditional payment modes like cash and cheque, have significantly reduced. However, cheques continue to be a reliable method of payment. A cancelled cheque is required during many banking and financial transactions. Let us discuss the importance and uses of a cancelled cheque.
You are reading: What is a cancelled cheque? Meaning, image and purpose
Cancelled cheque meaning
A cancelled cheque is crossed across the layout with two parallel lines, and the word ‘cancelled’ is mentioned within the lines. One does not have to put a signature or mention anything on the cheque. This cheque serves as a proof of having an account with a particular bank.
When writing a cheque, it involves three parties, namely:
- The drawer of a cheque: The individual who signs and issues the cheque for making payments of a specified amount.
- The drawee of a cheque: It refers to the bank, which has been ordered to make the specified payment.
- Payee: It refers to the individual to whom the bank is required to pay the amount.
A cancelled cheque may also mean a cheque for which the payment has already been made. That is, the bank marks the cheque as cancelled, once the cash has been drawn using the cheque. Thus, it cannot be used as an authorisation for drawing any additional amount of money from the payer’s bank account.
How to cancel a cheque?
- Take a cheque leaf from a chequebook.
- Draw two parallel lines as shown in the image below.
- Write the word ‘cancelled’ between the two lines.
When you cancel a cheque, make sure that it does not cover any vital details like the bank account number, IFSC code, account holder’s name, etc.
Check out the cancelled cheque image given below:
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Source: Pinterest
Also read all about the types of demand draft
Cancelled cheque purpose
A cancelled cheque is used to confirm one’s bank account details, including the bank account number, the name of the account holder, IFSC and MICR codes, bank name, name of the branch, etc.
One cannot use a cancelled cheque to withdraw money. However, there are several fraudulent activities where one can misuse a cancelled cheque. Hence, one should be cautious and hand over the cheque only after ensuring that the individual or institution is trustworthy.
There can be various instances when a cancelled cheque may be required as discussed below:
Electronic Clearance Service (ECS)
It is an electronic funds transfer method by which money from a bank account is automatically deducted periodically, say monthly, for any transaction. A cancelled cheque is required for setting the Electronic Clearance Service from an account.
Loan processing
Lending institutions may request borrowers to submit a cancelled cheque for processing the loan application.
Equated Monthly Instalments (EMI)
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If you opt for a personal loan, home loan, car loan, etc., you are required to pay monthly instalments, known as EMIs. Banks may ask for a cancelled cheque to initiate the process.
[ecis2016.org] What is EMI
Withdrawal of Employees’ Provident Fund (EPF)
Companies may request a cancelled cheque for the withdrawal of EPF funds.
[ecis2016.org] All about EPF scheme
Buying an insurance policy
One may have to submit a cancelled cheque, among other documents, to an insurance company when buying an insurance policy such as an endowment policy or a money-back plan.
Opening a Demat account
Investment firms usually ask for a cancelled cheque from their customers as part of the Know Your Customer (KYC) process. It helps the company validate the bank account details provided by customers.
If you are planning to invest in the stock market, you will need to open a Demat account, which is a digital platform where you can maintain your shares and other securities. You must provide a cancelled cheque with other documents when opening a Demat account.
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