When to use cheques
The majority of people no longer use cheques (or checks) as part of their daily lives, but there are some occasions which still call for cheques.
When would you need a cheque:
– Paying Rent or utilities
– Placing a deposit on a purchase
– Paying for services where they do not take plastic payment
– Signing up for pre-authorized debit or automatic withdrawals and deposits
– When sending payment by mail
– when making payment arrangements
In Ontario, a landlord can ask for pre-authorized payments, but they cannot require it. This leaves you with the option to pay with cash (always get a receipt), credit (not always an option), or cheque. Cheques are a common choice because you control when and how much the landlord can deduct from your account. In the event that you do not want someone to cash a cheque, you can also place a stop payment on your cheque at the bank.
Oops! If you forgot to pay the hydro bill, you could pay it online, but that will take a few days to process. You could use a credit card, but what if the office is closed? I could drop off a cheque to the office for easy payment next day.
Placing a deposit on a purchase
Are you buying a house or a car? Oftentimes a contract requires consideration to make it legit – in other words, you are placing money in trust (on hold) in exchange for the goods you are buying. In order to show good faith, buyers will leave a deposit, and the easiest way to leave a deposit is by cheque.
Paying at places that do not take plastic
Yes, they do still exist! Some places, like lawyers, therapists, or contractors, may not accept plastic as a payment because of the overhead costs when using a debit or credit machine. If your bill is more than a few hundred, it’s usually easier to write a cheque than to pay by cash – and some providers prefer not having to carry around big amounts of cash!
Signing up for pre-authorized payments
If you have ever signed up for a gym membership, a long distance plan or another recurring monthly fee, the companies usually prefer to enroll you in a pre-authorized payment plan (PAP). The easiest way for you to provide access to your account is to sign the agreement for PAPs, and to provide a voided cheque.
Paying by mail
Once upon a pre-internet world, people used to order out of catalogues, from the television or radio, or by fliers. The easiest method of payment was cheque by mail. These methods of purchasing still exist, albeit less common with the internet, but cheques are still the easiest and cheapest way to send money by mail.
Do you owe someone money? If you do, sometimes you may make a payment arrangement, and it’s often inconvenient or easy to forget to bring someone cash each month. Sometimes, the creditor will accept post-dated cheques. Each cheque is a payment dated in the future. You can pay rent like this as well. It’s a great way to “set it and forget it”!
Parts of a Cheque and How to Spot Fraud
The Toronto-Dominion Bank posted a great explanation of the anatomy of a cheque.
This is the number on your cheque. For example, cheque books usually come numbered from 1-50, 51-100, etc. It must match the number in the top right corner. If it doesn’t match, don’t accept that cheque!
This is the same as your branch number. Every branch or transit number is a 5 digit code. That 5 digit code indicates the location of the branch. If your home branch changes, this number could change as well.
Financial Institution Number or Bank Code
This is more often called the bank code. It is always three digits, and it represents the bank itself. For instance, TD is bank #004, Royal Bank is 003, etc. These codes are set across Canada, and always follows the transit code.
The Designation Number can vary on cheques, but it’s usually an internal code pertaining to your account. It would not be wrong to consider it as the pre-fix for your account number.
This is your account number. For each account you have, the number should change. Pay close attention to this number, as it’s like your house number. Mailing a letter to your street is great, but the mailman needs the house number to deliver it!
– Never take a cheque that has already been signed on the back.
– There are comments on the back of cheques that say what security features the cheque has. Sometimes it’s tiny text on the front, sometimes it’s a watermark. Inspect cheques carefully.
– Any changes on the cheque need to be initialed by the account holder.
– Make sure that the cheque is always signed!
A Completed Cheque
This is an example of a filled out cheque by Caisse Desjardins.
Dates are almost always YYYY (year) MM (month) DD (day).
This is the recipient’s name. You can write or print, but it’s best to fill the entire field. If the name is short, you can fill the space like this: —————-George Nash ——————–
The Order Of
This is the amount the cheque is for. Print or write out the words of the amount. Don’t use numbers here. Again, fill out the entire space, because room on that line could allow room for fraud. ———–FOUR HUNDRED THIRTY————————
This area is confusing for many people. If there are cents on your cheque, write it on the left side of the dash. Always use numbers for cents.
Always use numbers in this box. If the amount has cents, include the cents exactly as noted in the amount beside it.
A good habit to have is to use this memo line. You can write anything you want here, and it’s best to write what the cheque is for. “Rent” isn’t the most descriptive, so I’d recommend “March Rent, Unit 105”.
On this line, sign your name in the same way you would sign anything else. Even if the account is in the name of Mary Beth Sue Jane Jones, and you always sign M. Jones, then sign it as M. Jones. This is your identifier that proves you authorized this withdrawal from your account.
How To Know The Difference Between A Bank Draft And A Certified Cheque
A bank draft is a cheque that is written by the bank, at the bank and on the bank’s account. You can liken it to a money order, where you purchase a cheque for a set amount. The funds are withdrawn from your account, and they are placed into the bank’s account. A bank draft is usually a cheaper option than a certified cheque, as a bank draft is printed on a bank cheque.
A certified cheque is a cheque written on an account owned by someone other than the bank. The cheque is processed by that bank, and the bank takes the money out of the account, and deposits it into the bank’s account. The cheque will have a “Certified” stamp on it, and a sticker covers the old account number, and changes the cheque to show the bank’s account number. The bank is certifying that the funds are in the bank’s account, and that the cheque is as good as cash.
Certified cheques cannot be replaced easily if lost. Treat them like cash. Any replacement will take a lot of work and may not be possible!
How To Use Cheques
Hopefully this answers a lot of questions about cheques. It may seem like a simple concept, but many people do not know what cheques are, how to fill them out, and when to use them. That’s okay! Cheques will be around for a while yet, so it’s a good idea to become familiar with what they are, and how to use them responsibly.
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