A canceled check is a check that has already drawn funds on the designated account. In a bank statement, a customer may receive either his original canceled checks showing that these checks have been paid or copies of each. Usually, the institution from which the money is drawn, a bank, stamps the check to indicate funds guaranteed on the check have been given to the person or institution that received it.
Should someone ever need to prove that he's made a payment, he can use a canceled check as a receipt. From time to time, human error means a payment is not recorded, especially to other banks, credit card companies, or various utility companies. By showing the canceled check to any institution that questions whether the person made a payment, he essentially proves that he has. Financial experts recommend that people hold on to this proof of payment until their next bill shows a record of the payment.
People can also use canceled checks to prove business expenses, although it’s also a good idea to hold onto original records or receipts of business transactions. The old check doesn’t really tell what the person made a payment for, only that he made a payment. This may not be sufficient evidence for someone who needs to justify business expenses to the company he works for or to tax agencies, like the Internal Revenue Service (IRS).
Some people will hold onto their canceled checks for years, which is largely unnecessary. Usually once the person has verified that someone has received his payment, he can get rid of the check. This does not mean he should simply throw it out in the garbage. Though someone else usually can’t use the check itself again, it contains information that could be used to access the person's bank account.
For instance, these documents still contain the routing number of the bank and the bank account number. The check may also reveal other personal information, like the account holder's address, telephone number, and even driver’s license number. Generally, it’s a good idea not to include driver’s license numbers on checks, and to only include address and phone number. People may not even need to include a phone number, and if a company requires it, the account holder can write it in and initial it.
The main trouble with a canceled check is the routing number and bank account. More and more, people are able to make payments or purchase things on the Internet with this information only, especially if they also have the account holder's full name. It therefore makes sense to shred old checks once they are no longer needed so that no one can gain access to valuable information about the bank account.