You must have noticed that whenever you apply for any financial service – be it a new salary account, insurance claim, mutual fund SIP, or EPF withdrawal – the bank or company asks you for a ‘Cancelled Cheque’. But many people do not understand properly that when there is no payment through the cheque, then why is it needed?

A cancelled cheque is a document through which your bank details (such as account number, IFSC code, bank branch, name of the account holder) can be verified. Since the word ‘CANCELLED’ is written in big letters on it, it has no payment value.

Where is a cancelled cheque useful?

In opening a salary account

In withdrawing or transferring EPF

In setting up auto-debit for SIP or EMI

At the time of taking an insurance claim

At the time of loan approval

While investing in mutual funds

What is the benefit?

This assures the bank or the company that the account details you have provided are real and active. This eliminates the risk of payment going to the wrong account.

Is there a risk of fraud in this?

If you just write 'CANCELLED' in big letters on the cheque and do not leave any sign or blank space, then it cannot be misused. Yes, while giving the cheque, make sure that it is clean and without any cuts or tears. A cancelled cheque may look trivial, but its importance is huge. It not only verifies your details, but also saves you money from going to the wrong place.

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