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While a cancelled cheque cannot be used to withdraw money, it is valuable for one key reason: it proves that the account exists and provides verified details.
A cancelled cheque contains sensitive info so it should be handled with care to avoid fraud.
In an age where digital payments dominate and UPI apps are just a tap away, an old-fashioned piece of paper continues to play a surprisingly pivotal role in the country’s financial landscape – a cancelled cheque. Though it can no longer be used to pay anyone, this simple cheque marked with the word “CANCELLED” remains indispensable in multiple official and banking processes, from salary account openings to mutual fund investments and even insurance claims.
So, what makes this inoperative cheque so important? And why do banks or financial institutions continue to demand it?
A cancelled cheque is essentially a regular bank cheque on which the word “CANCELLED” is written across in bold letters, usually diagonally. No signature is needed. While this cheque cannot be used to withdraw money, it is valuable for one key reason: it proves that the account exists and provides verified details such as the account number, IFSC code, MICR code, branch name, and the account holder’s identity.
This verification acts as a safeguard for both banks and customers, ensuring that money lands in the right account and not somewhere else due to a clerical mistake.
Where Is A Cancelled Cheque Used?
A cancelled cheque is a frequent requirement in various financial and official dealings:
- Opening Salary Accounts: Employers ask for it to validate bank account details of new employees.
- Provident Fund (PF) Withdrawals or Transfers: It ensures PF money is credited to the correct account.
- Loan EMIs & SIP Auto-debits: Banks and mutual fund companies use it to enable automated monthly payments.
- Insurance Claims: To confirm the destination account for payouts.
- Mutual Fund Investments: Necessary for account authentication during initial setup.
- Loan Applications: Banks verify account details before sanctioning and disbursing loans.
- Demat Account Openings: Essential for share trading-related bank linking.
Despite not involving any financial transaction, the cheque becomes a sort of trust anchor in an ecosystem increasingly vulnerable to cyber fraud and input errors.
The primary aim of requesting a cancelled cheque is to eliminate room for error during money transfers. For example, during a SIP setup, banks need to confirm the accuracy of the IFSC code and account number. A cancelled cheque, being an official bank document, confirms this data precisely.
This practice helps minimise the chances of wrong crediting – a risk that can have significant consequences, especially in the case of large transactions or long-term investments.
Even though it can’t be used to withdraw funds, a cancelled cheque isn’t harmless. It contains sensitive banking information, so handing it over recklessly can be risky. Here are some essential precautions:
- Never Sign It: Adding a signature can expose you to potential fraud.
- Limit Distribution: Share only with trusted institutions or parties.
- Use Standard Ink: Stick to blue or black ink to write “CANCELLED”; banks may reject other colours.
- Track Its Use: Always note when, why, and to whom you gave a cancelled cheque.
- Report Losses Promptly: If misplaced, alert your bank, strike out the relevant cheque number in your chequebook, and issue a new one.
In conclusion, the cancelled cheque might seem outdated in our digitised era, but its function is far from redundant.
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