What is a bounced check? It’s a check that was used for payment, but the check could not be processed because the check writer didn’t have sufficient funds available to fund the payment.
If this happens, the bank will reject the payment request and return the check to the payee’s bank. It is very important to stay educated on these things just in case your check bounces. In this guide, we will explain why this happens and what you can do to avoid this from happening to you.
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Table of Contents
What Is A Bounced Check?
A bounced check is slang for a check that cannot be processed because the account holder has nonsufficient funds (NSF). Banks return, or bounce, these checks, known as rubber checks, rather than honoring them, and banks charge the checkwriters NSF fees.
If you write a rubber check, your bank will charge you fees for insufficient funds or overdrawing your account. Those fees are typically around $35 or so. In addition, the person or business you wrote the check to may also charge penalty fees or late payment fees.
If you receive a check that bounces, you’ll also have to pay for depositing a bad check, even if it wasn’t your fault. In some cases, you can pass those charges on to the check writer, but you have to follow certain rules to collect those funds from the check writer
Why Checks Bounce?
When people pay by check, there is trust involved because payment is not immediate. The payee doesn’t really know how much money the check writer has available for spending. In other words, merchants and service providers accept checks assuming the checks will clear without any problems.
It’s also possible to write a check for any amount you want, whether or not you have the funds in your checking account. Sometimes checks bounce by accident because the check writer believed he had the right amount of funds in his account, but large debit card holds and outstanding checks might catch them off guard. Sometimes people just forget to make deposits or check their account balance.
If the checking account was closed, checks will be rejected. If the check writer placed a stop payment on the check, the bank should honor that request. Banks can refuse to honor a check if there’s anything suspicious such as missing signatures and stale-dated checks.
What Happens When a Check Bounces?
When a check you write gets bounced there tends to be a charge associated with the transaction as well as a bank fee. An example would be if a check you wrote gets bounced by an establishment, they reserve the right to redeposit the check with a bounced check fee.
An alternative to your check getting bounced would be that the information gets sent to a credit bureau, such as ChexSystems. These credit bureaus collect financial information on savings and checking accounts. Any sort of negative report with these organizations can make it harder for consumers to open checking and savings accounts in the future.
In some cases, businesses will collect a list of customers who they know get their checks bounced frequently and ban them from writing checks that that establishment altogether.
How to Avoid Bounced Checks
Both check writers and check recipients can help prevent checks from bouncing. Check writers need to ensure that they have sufficient funds available for every check they write. Make it a habit to check your available balance often.
Usage of personal finance apps and text messages with your bank will help you keep track of your account balance, deposits, and withdrawals. It’s also a good idea to leave extra money in your checking account for unexpected expenses. If you write a check and you later realize that it’s going to bounce, contact the payee immediately. Let them know before they deposit the check, and make other arrangements. This will save time and money for both of you.
Check recipients take a risk by accepting checks because you never know if they have the sufficient funds or not. To help this, contact the check writer’s bank to verify funds before you accept or deposit a check. Some banks will cooperate, but others will not provide any information about customer accounts. There are some businesses that can use databases that track checking accounts and help to identify checks that are likely to bounce.
Bounced checks are somewhat common and is something that you should be on the lookout for especially if you accept checks as a form of payment. It’s basically a check full of empty promises because the payer didn’t have sufficient funds available to fund the payment.