You would think that something like cashing a cheque, money order or bank draft would be simple. Many, many years ago, back in the pre-technology age, banks did a lot of cheque cashing. That’s now a things of the past and you usually can only cash an item with the bank where you deal, unless it’s a Government of Canada cheque.
There are all kinds of rules around what a bank will cash and how long items will be held. What if it’s payable to two people? What if it’s future dated? I have a cheque dated from a year ago, can I cash it? What if my friend gives me their cheque to cash? I’ll answer all these questions here.
With the exception of Government of Canada cheques, banks rarely cash cheques anymore. If you want money from your cheque, you’ll need to have a bank account and deposit the cheque in your account, then withdraw the money as long as there are no holds placed on the money.
If you don’t have a bank account you have to go to a cheque cashing service like Money Mart. Unfortunately, they will charge a fee or take a percentage of the cheque to cash it for you. So if you’re going to be receiving negotible items you really need a bank account.
Special Rules for Cashing Government of Canada Cheques
The government has explicit rules when it comes to cashing cheques they have issued. Any financial institution must cash a Government of Canada cheque for any amount up to $1500 even if the person does not have a bank account with them. Of course there are a few exceptions:
- You must have valid identification
- It cannot be a third party cheque. This means your friend can’t sign over their cheque to you and ask you to cash it for them
- The cheque has to be payable to a person not a business
- The bank will verify the cheque with the government and if it’s determined it is not a valid item they can refuse to cash it.
NOTE: The rules do not apply to Provincial Government Cheques.
What if You’re Not Sure an Item is Valid?
It’s not a good idea to accept any negotiable item from anyone unless you’re confident that it is valid. There are a lot of forged items out there and people write NSF cheques. At one time Bank Drafts used to be considered 100% safe, but not anymore due to forgery. If you’re not certain then take it in to a branch and they will advise you as to how long a cheque will take to clear so that you don’t spend the money until it has sufficient time to clear the person’s bank account. It usually takes only a few days for a cheque to clear, but out of country cheques can take up to a month.
Should you Accept a Cheque when you Sell Something?
If you’re selling something like a vehicle and someone offers to give you a cheque, ask for cash or an e-transfer instead. If it’s a large amount, ask for a Bank Draft. Even a Bank Draft can be faked so use extra caution if you don’t know the person. The best way to guarantee your payment is to go to the bank with the person who is buying your item and observe them purchase the draft. Then you know that it’s a valid draft and it’s as good as cash. If you aren’t able to go to their bank with them, then ask them to provide you with a business card for the person who sold you the draft, or a business card for the assistant manager. You can then call the person at the bank to verify that it’s a valid item before you make the sale.
If an item that you deposit is returned for any reason, it will be charged back to your bank account. This means the money will be taken back out of your account. What if you’ve already spent the money? Then your account can become overdrawn and you can incur service charges and overdraft interest charges. My post on Overdraft Protection outlines the fees and consequences of being overdrawn.
Cheques Payable to Two or More People
It depends how the cheque is written. Is it payable to Joe Smith or Mary Smith, or is it payable to Joe Smith and Mary Smith. If it’s Joe or Mary then either one of them can cash it; whereas, if it’s Joe and Mary then they both need to be present to cash it. However, if Joe and Mary have a joint account the cheque can be deposited to the joint account even if it is payable to Joe and Mary. They both need to endorse the back of the cheque, but one person can deposit it.
Cheques Payable to Someone Else
A cheque payable to someone other than the account holder is called a third party cheque. If your friend gives you a cheque and asks you to take it to your bank and cash it for them you will not be able to do this unless your friend comes to the bank with you and has identification and signs the cheque in front of the banker. This protects the payee of the cheque to make sure they are the person receiving the money. You will also want to be certain that the cheque is good because if it is returned for any reason such as NSF, the money will be charged back to your bank account.
Payable to you and a Company
Sometimes cheques are written to a person and a business. This would happen when the business has an interest in the funds. An example would be if your car was written off in an accident. If you have a loan on the car, the insurance company would make a cheque payable to you and the company that has the loan. For example, Joe Smith and TD Bank. In this case you need to go to TD Bank and have them sign off the cheque before you can get your money. They’ll pay your loan off first, then give you the remainder(if anything’s left).
Post Dated and Stale Dated Items
A post dated cheques has a date in the future. Don’t deposit it before the date on the cheque or it will get returned.
Stale dated means any cheque dated older than 6 months. You’ll need to get a new cheque with a current date. The exception to this is in the first month of a new year. If someone writes a cheque on January 15, 2020 and accidentally writes January 15, 2019 it’s assumed it’s just an error so you’ll be able to deposit it. Bank drafts and money orders can be reissued if they are stale dated.
Incorrect Name Spelling
If someone gives you a cheque with a minor typo or uses a short name for your first name, it’s okay. A cheque made out to Joe Smith instead of Joseph Smith is fine. Same goes if it’s Bob Sullavan instead of Bob Sullivan. As long as its not significantly different from your name, the bank will accept it.
If you have legally changed your name you need to update your bank account information and supply new identification. If you had a cheque issued in your old name and you still have some identification in your previous name you’ll be able to deposit it.
Changes Made to a Negotiable Item
Minor changes on a cheque can be stroked out and initialed. Banks won’t accept any changes without an initial. There can’t be any white out or anything scribbled right out so that it’s not possible to see what was changed. It’s fine if the cheque owner strokes out their address on the top left corner and prints a new address. Cheques are expensive so people don’t like to order new cheques if their address has changed. None of the numbers on the bottom of the cheque should ever be changed. The bottom numbers determine the bank & account number and they should never be altered or the cheque is invalid.
There should never be any changes on Money Orders or Bank Drafts!
Depositing in the ATM or Mobile Deposit
So what happens if you deposit a cheque payable to 2 people or made payable to your friend at an ATM or Mobile Deposit?
Don’t do that!
If you deposit an item that should be signed with someone else present at an ATM or using mobile deposit it will be accepted initially. However, the cheque will get returned and charged back to your bank account. This can happen within a few days or sometimes it takes a few weeks. And if you have already spent the money from the cheque you deposited your account may become overdrawn which can be costly.
Another issue with depositing an item that is payable to someone else, or more than one person, or with an incorrect name is that it appears suspicious to your bank. When the cheque gets returned they may flag your account and capture your debit card or reduce the limit. If a charged back item overdraws your account, your debit card will definitely be restricted or captured. It isn’t much fun when you have to call your bank and explain that you weren’t really trying to do anything wrong and beg for your debit card back.
When in doubt-check it out! If you are ever unsure as to whether you should be depositing a negotiable item, call the bank, or go into a branch and ask an employee for assistance.
I welcome your comments and questions, and please share this if you have found the information helpful.