Cheques
A cheque is a useful instrument to pay your bills. However, unlike a credit card, in order for you to pay with a valid cheque, you must have the corresponding amount of the cheque in your current account. In other words, the old saying that “I have money because I have cheques” is not true; you must have the funds in the account in order to write a cheque.
Getting your own cheques:
- Open a current (chequeing) account.
- Your bank will order printed cheques for you.
Once they are ready, the Bank will provide you with a cheque book that contains cheques with your account number and other relevant information. Inside that cheque book, generally on the cover of it, you will also see a place to keep track of the cheques you write, it includes the date, name of the person or company that you a writing the cheque to, and amount). Be sure to sign the cheque.
What does a cheque look like?
Generally a cheque will include:
- Name of the person/institution to whom you are writing the cheque
- Date on which the cheque is written
- Amount of the cheque written numerically
- Amount of the cheque written in letters
- Your signature
You will also see on the cheque:
- Cheque number
- Place of issue
- Currency
- Routing number
Some cheques also contain a line on which you have the option to include the purpose of your cheque.
How does a cheque work?
- You fill out the cheque. Be sure that you have available the amount that you are including in the cheque, otherwise if you have insufficient funds, your cheque will bounce and the person you are paying to will come after you for the funds; the bank will also charge you a hefty fee for writing a cheque with insufficient funds.
- Present the cheque to the person/institution.
- The person/institution that you give the cheque to will take your cheque to a financial institution to process the cheque; that financial institution will take the cheque to your bank.
- Once your bank approves the cheque (correct signature, available funds), it stamps and cashes the cheque and provides the other financial institution with the money indicated in the cheque where the money is taken from your account and placed in the account of the person who wrote the cheque. This is called clearing a cheque and a cheque that has gone through the entire process is a “cleared” cheque.
- Your payment is complete, and at the end of each month you will receive a statement from your Bank indicating all the cheques that you wrote during that month and how much money you spent. Upon request, you are also able to ask for the paid cheques in case you would like to keep them for any reason. It is advisable for you to reconcile your chequeing account every month using your bank statement and copies of paid cheques.
Can people pay you with a cheque?
Even if you don’t have a chequeing account you may encounter people who ask you if it’s ok for them to pay you with a cheque. In order to accept a cheque from someone you must trust that that person has funds in his or her account. Until the cheque clears, you have not been paid. If the person doesn’t have sufficient funds in the account, the cheque will be returned to you and the bank may charge you a fee for processing a cheque that did not have sufficient funds.
Insufficient Funds
Keeping track of your cheques and knowing how much money you have left in your account is key. You will not want to write cheques where you don’t have sufficient funds (which means not having enough money in your account to cover the cheque) because this is costly. When a cheque is returned for insufficient funds, a bank generally charges you, the person who wrote the cheque, a penalty fee. Also, the person to whom you wrote the cheque might be dissatisfied or possibly you will also be charged a penalty fee by the institution to whom you intended the payment.
Let’s say you make out a cheque today to someone. The person/institution you gave it to might take some days to cash the cheque, and sometimes even months. When estimating your remaining balance in your current account, think about those cheques that you have signed but which have not yet been debited (subtracted) from your account at the bank. You have subtracted them from your cheque book records but the banks has not subtracted from your account at the bank because the cheque has not been presented to the bank yet.
Different banks may offer various types of cheques. Talk to your Bank to see which one is most convenient for you.
What if I lose a cheque?
- If you lose a cheque written by you, call your Bank and put a “stop order” on the cheque. This means that if someone tries to cash or deposit it, he or she will not be able to do so as you had already notified the Bank.
- If you lose a cheque that someone gave you, notify the person/institution who gave it to you as soon as possible.
Personal Financial Tips
- Pay your bills on time.
- Eat more at home and less out.
- Take your food to work.
- Forgo the ice cream store and pop popcorn at home.
