What Is a Canceled Check?
A canceled check is a check that has been paid or cleared by the bank it was drawn on after it has been deposited or cashed. The check is “canceled” after it’s been used or paid so that the check cannot be used again.
- A canceled check is one that has been cleared by cashing or depositing it, rendering the check null and void for further transactions and cannot be re-used.
- A canceled check indicates that the clearing process has been complete, and so canceled checks can be used as proof of payment.
- A check may also be cancelled by its writer before it has been transacted by alerting the issuing bank.
Understanding Canceled Checks
A canceled check has been paid after going through a check clearing process. The check is canceled once the money has been drawn from the bank the check was written on or the drawee. The payee is the person the check is written to, and the payee’s bank receives the deposit. The process of a canceled check includes the following:
- The payee, or the person the check is written to, signs the back of the check.
- The check is deposited into the payee’s bank account.
- The payee’s bank notifies the drawee’s bank, and the transaction goes through the system of the Federal Reserve Bank.
- The drawee’s bank (or the bank the check was written from) pays the payee’s bank the funds if there are sufficient funds in the payor’s account.
- The payee’s bank deposits the cash or makes the funds in the deposit “available” for withdrawal.
Today, nearly all checks are cleared through the Federal Reserve Banking system electronically even in cases when the deposit is a paper check. The deposit and check clearing process is still performed, but the paper check almost never leaves the facility where it is deposited.
Instead, a special scanner creates a digital impression of the front and back of the check, which it sends to the other bank. When the check finally clears the account of the payor or the person who wrote it, it’s considered canceled. In short, a canceled check means the clearing process has finished, and the check cannot be reused. As a result, canceled checks can be used as proof of payment.
How Customer Access to Canceled Checks Works
Traditionally, canceled checks were returned to account holders with their monthly statements. That is now rare, and most check writers receive scanned copies of their canceled checks, while the banks create digital copies for safekeeping.
By law, financial institutions must keep canceled checks or the capacity to make copies of them for seven years. In most cases, customers who utilize online banking can also access copies of their canceled checks via the web. While many banks charge for paper copies of canceled checks, customers can typically print copies from the bank’s website for free.
Example of a Canceled Check
Let’s say Jan writes a check to Bob. Bob takes the check to his bank and deposits it. The bank may credit Bob’s account in the amount of the check automatically or may delay clearing the deposit. Bob’s bank may make a portion of the funds available to Bob until the check clears through Jan’s bank. Bob’s bank sends the check electronically to Jan’s bank. Jan’s bank debits Jan’s account for the amount of the check, sends the funds to Bob’s bank, and stamps the check as canceled.
Canceled Checks vs. Returned Checks
While a canceled check is honored by the bank, a returned check is a check that did not clear the payor’s bank, and as a result, the funds would not be made available to the payee or the depositor. There are a few reasons a check can be marked as returned for which the most common is insufficient funds in the payor’s account.
However, the check can be returned for other reasons, including:
- The date the check was written was longer than six months ago.
- The payor’s account is closed.
- The person who wrote the check doesn’t have signing authority to write checks for the account.
- A stop payment order was placed on the check.
If someone writes a check and there is not enough money in the account to cover it, the bank may return the check to the payee. Typically, a fee is charged to the payee by the payee’s bank, and the payor’s bank charges a fee to the payor’s account for writing a check that ultimately bounced due to non-sufficient funds.
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