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Why should you understand how to read a Canadian cheque? If you do business in Canada or with a Canadian company, it is a smart idea to educate yourself, so you know how to get the information you need when you need it.
If you're from the United States, reading a Canadian check is slightly different from a check from the US. There are some key but simple differences on a Canadian cheque.
You're probably asking yourself, "Why do I even need to know this stuff?" Here are a few reasons:
1) If someone is asking to wire you money directly to your account, you can give them the information that is found at the bottom of your check, also known as the MICR Encoding Line. Note: we highly advise you check with your bank, as often there are different numbers for wire transfers for security reasons.
2) If you are setting up a secure online payment system, such as PayPal, Stripe, Square, or Zelle, you need this information to have the funds deposited into your account.
3) If you have an online store with a merchant account, you will need this information to set up your account and get paid, just as in #2.
4) Any other online account where you will be paid with direct deposit will need this information.
The MICR Encoding Line
This is how banks process both US checks and Canadian cheques promptly. All the information is stored on this line at the bottom of the check/cheque. MICR stands for Magnetic Image Character Recognition. The ink that is used in this area isn't just regular ink; it is magnetic ink.
Here is how the MICR Encoding Line is broken down in the example above.
Cheque Number: On the top right of your cheque you will see a cheque number. This same number appears in this area to inform the financial institution what check number it is to post on your monthly statement. Unlike US checks where the check number could appear to the left of the routing number, to the right of the routing number or even to the right of the account number, on Canadian checks the check number is always the first number in the MICR line to the left of the transit and institution (routing) number. On Canadian personal cheques, this has a maximum length of 3 digits, whereas on U.S. personal checks this is usually 4 digits long.
Transit Number: Referred to as the routing number on a US check, this number is five digits and corresponds to the home branch where you initially opened your account. Even if you perform your banking at another branch due to convenience or in the event you move, this number will not change unless you open a new account.
Institution Code: This is three digits providing additional info to the transit number and is the code for a Canadian bank or financial institution. If a bank has one branch or 500, it is the same three-digit code. For example, the Bank of Montreal Institution code is always 001, TD Bank is always 004 and so on.
Account Number: This portion of the MICR can vary from seven to twelve digits in length. The length and format of this number are bank specific. Some banks use dashes; others do not.
Transaction Code: Although not shown in the picture above, Canadian cheques sometimes include a transaction code after the account number. For example, the transaction code “45” following the account number on the MICR line denotes that this is a US Dollar Account held at a Canadian bank or financial institution and when the cheque is processed, it will be in US Funds. The words US Dollars or US Funds should also be on the cheque face if/when the transaction code 45 is included in the MICR line. There are several other specific transaction code numbers each assigned to or used for a specific financial transaction or method of transferring funds.
Now you know how to read a Canadian check like a pro!
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