What is a Canceled Check?

A check is one of the most widely used ways of moving money from one account to another. You have probably written or received a check in your lifetime. But you may not understand canceled checks, and therefore you run the risk of getting into some trouble with a bank.

What Is a Canceled Check?

A check is a piece of paper that provides information on a transaction to be carried out. It includes the date, the amount of money, the payee, and the payer’s information. This allows the bank teller to transfer the amount from your account to the payee’s account. All the information is provided to the bank employee to process the transaction on your behalf.

So what does a canceled check mean then? As per the definition, a canceled check has been processed and paid to the payee. The bank it was drawn on has cleared it and the cash amount has been debited from the account. In the United States, checks are cleared electronically using the Federal Reserve Banking system. The paper check is scanned, and a digital blueprint is created. This is then sent to the issuing bank, which verifies the information electronically and transfers the amount.

The check is then canceled so that it cannot be used again. In other words, canceled checks are processed checks.

But a check can also be canceled even before it is processed. This invalidates the check so that it cannot be used to transfer money. If a check is lost before it is processed, the payer may cancel the check by alerting the issuing bank.

Difference Between a Canceled Check and a Returned Check

Now that you know what a canceled check means, it’s important to learn another concept known as a “returned check.”

As opposed to a canceled check which gets processed, a returned check is the one that isn’t honored by the receiving bank. If you’ve written the check, a returned check means your bank will not transfer the amount to the beneficiary. Likewise, if you received the check, you won’t be getting paid and need to get in touch with the check writer.

First, you should understand why a check may be returned. While there are a variety of reasons, some of the most common are:

• The payer has insufficient funds in his account. The main reason checks are returned is that the account holder who wrote the check had insufficient funds in his account. Thus, the total amount cannot be debited from the account. If this is the case, the check is considered to be bounced.
• The Stop Payment feature is enabled. If the check writer has the Stop Payment feature enabled in his account, any payment type can be halted.
• The check is out of date. Checks are intended to be processed within a given time frame from the date they were written. If you try to cash a check beyond this time limit, both the receiving and issuing banks will reject the transaction. This is another common reason why checks return. The time frame is usually six months.
• Incorrect information was provided. If there’s incorrect information provided on the check, the transaction will not be completed.

Therefore, you shouldn’t confuse a canceled check with a returned check and treat each one accordingly.

Example of a Canceled Check

In this section, we’ll narrate a real-life case where a canceled check comes in. This will help you get a better idea of these types of checks.

Jane is writing a check to her employee Peter, to pay him his salary. She writes the check and hands it over to Peter so he can cash the amount. Peter takes the check and deposits it in his bank. The bank then verifies the information and inputs the details on the Federal Reserve Banking system.

Depending on how it operates, Peter’s bank may make a portion of the funds available for Peter to withdraw. Jane’s bank will receive the request to debit the amount. They can decide to credit Peter’s account instantly or delay the process. Once the funds are cleared, the check will be stamped as canceled. Then it will be kept in the bank’s warehouse in case a need for it arises in the future.

In the old days, the check was returned to the writer. But now it is kept by the bank.

Reasons Checks Get Canceled

There are two main reasons checks get canceled:

The Check Is Processed, and the Amount Is Cleared

Checks are stamped and canceled once they’re processed. This ensures that the check cannot be used for a second time if it ends up in the wrong hands. This is a protocol followed by all banks in the United States and around the world. While it is highly unlikely that the same check will be used twice, there’s a chance that it might get modified. The stamp is hard to manipulate and hence will invalidate it. 

The Check Is Lost

The second reason checks are canceled is that they are lost before they are submitted to the bank. Therefore, before it falls into the wrong hands, the issuer may decide to cancel it. If so, the issuing bank will consider the check void.

There might be other reasons, but the goal remains the same: invalidating the check and ensuring it cannot be used fraudulently.

How to Cancel a Lost Check

If you need to cancel the check, you need to follow a set of procedures to make it happen. To cancel a check, you need to write the word “canceled” across it. But if you do not physically have the check, you’ll have to inform the bank.

Write to the correct department with your account number, check number, exact amount, and reason for canceling the check. Since your check is lost, it is advised to do this as soon as possible.

If the amount is unusually high, you can enable the Stop Payment functional until the check is canceled or found.

Read More

• How to Cash a Check Without an ID
• Where to Get a Cashier’s Check Without a Bank Account
• How to Close Chase Account
• How To Sign Over a Check
• How to Close Bank of America Account
• What is the Chase ATM Withdrawal Limit?

Conclusion

Canceled checks don’t harm your credit score as bounced checks do. But it’s important to deal with them correctly. If you have any further questions, consult your bank.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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