What is a 'Canceled Check'

A canceled check is a check that has cleared the depositor's account and has been marked "canceled" by the bank. A canceled check has been paid by the drawee bank and endorsed by the payee, the payee's bank and the Federal Reserve Bank. Canceled checks can also be used as proof of payment.

BREAKING DOWN 'Canceled Check'

Traditionally, canceled checks were returned to account holders each month with their monthly statements. That is now rare, and most check writers receive scanned copies of their canceled checks, while the banks creates 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.

How Canceled Checks Work

A canceled check is the last step in the traditional check cashing process. To illustrate, imagine Jan writes a check to Bob. Bob takes the check to his bank and deposits it. The bank credits Bob's account in the amount of the check. In some cases, the credit takes place automatically, and in other cases, there is a delay on all or a portion of the funds until the check clears. Bob's bank sends the check to Jan's bank. Jan's bank debits Jan's account for the amount of the check, and it stamps the check as canceled.

As of 2006, 57% of banks were still using the traditional process of cashing and depositing checks, but by 2016, nearly 100% of banks have shifted to an electronic process. The concept is the same, but the paper check almost never leaves the facility where it is deposited. Rather, 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 person who wrote it, it is considered canceled. Essentially, canceled means the process is done, and the check cannot be reused.

Difference Between a Canceled Check and a Returned Check

While a canceled check is honored by the bank, a returned check is not honored. If someone writes a check and there is not enough money in his account to cover it, the bank may decide to return it. This means the bank sends it back to the account into which it was deposited.

To continue with the above example, if Jan does not have enough money in her account to cover the check she wrote to Bob, Jan's bank can return the check. At that point, Jan's account is not debited, but she may incur a non-sufficient funds fee. When Bob's bank receives the check, it debits Bob's account the amount it previously credited. Then, it either tries to resubmit the check to Jan's bank, or it sends an electronic copy of the returned check back to Bob.

RELATED TERMS
  1. Check

    A written, dated and signed instrument that contains an unconditional ...
  2. Rubber Check

    Another name for a "bounced check." A rubber check is a slang ...
  3. Bounced Check

    A slang word for a check that cannot be processed because the ...
  4. Float Time

    The amount of time between when an individual writes and submits ...
  5. Substitute Check

    A paper reproduction of a check that is copied electronically. ...
  6. Certified Check

    A type of check where the issuing bank guarantees the recipient ...
Related Articles
  1. Personal Finance

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
  2. Personal Finance

    Top 5 Reasons Banks Won't Cash Your Check

    Learn the top reasons that a bank won't cash your check, and find out what steps you can take to prevent those scenarios from happening.
  3. Managing Wealth

    Top Premium Checking Accounts of 2015

    Which banks offer the best deals for premium checking accounts – and what do you have to do to qualify for one?
  4. Personal Finance

    10 Checking Accounts the Ultra Rich Use

    These accounts – created specifically for the wealthy – come with special extras such as personal bankers, waived fees and the option of placing trades.
  5. Personal Finance

    Best Checking Accounts For Couples

    Being a couple, especially if you both have jobs, can help you qualify for benefits and fee waivers that would be tougher to get on just one salary.
  6. Tech

    5 Useless Financial Products That Will Disappear Soon

    Bank deposit slip: what's that? Everyday tools of our financial life that went from indispensable to obsolete.
  7. Investing

    Explaining Good ‘til Canceled

    A good ‘til canceled order remains in effect until an investor cancels a specific trade or executes it.
  8. Tech

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against those of their brick-and-mortar peers.
RELATED FAQS
  1. When do checks expire?

    There is a legal grace period for cashing checks, but depositors and issuers may risk overdraft fees if a late check is presented ... Read Answer >>
  2. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
  3. What US banks offer free checking accounts?

    Quit wasting money on monthly fees associated with your checking account and get a free checking account from reputable national ... Read Answer >>
  4. What are the differences between preference shares and bonds?

    Learn what information banks keep on file for their customers, and understand how this information can be used to deny an ... Read Answer >>
Trading Center