If you’ve never bounced a check or even heard the term before, good for you. It’s not something you ever want to have to deal with. A bounced check can be the start of a very bad journey that spirals out of control before you know it. So, what is a bounced check? Let’s find out.
What is a Bounced Check?
Put simply, a bounced check is a check that can’t be processed by the bank because you don’t have enough money in your checking account to cover it.
It is also called having nonsufficient funds or NSF.
When presented to the bank for processing, if there are not enough funds to cover the check, this bad check is returned to the payee, the person or vendor you wrote the check to, due to insufficient funds.
What Happens When a Check Bounces?
When you bounce a personal check you can expect all sorts of bad things to happen. Let’s go through the worst of it.
1. You will have to pay bank fees – First off, your financial institution is going to charge you an overdraft fee.
The average overdraft fee is usually around $35 dollars.
So, at the very least, you will have to find the money to cover the original check and then an additional $35 dollars to cover the overdraft fee.
However, this can just be the start of it.
Let’s say you wrote a check for $600 dollars to pay your rent and you had $600 dollars in your account to cover it, but you had three other checks come in at the same time. Let’s say these checks were for $45, $80, and $35 dollars.
Banks will typically go ahead and pay the larger check as they assume it is more important.
That means your rent check will be covered, but it will leave your checking account balance at zero.
The other three checks will then bounce and you will be charged a fee for each one.
You are looking at $105 dollars in bad check fees plus the amount of the three checks that bounced.
You are now in the hole for $265 dollars.
If any additional checks come in before you can increase your bank balance, you will have more fees to deal with.
You can see how this can spiral out of control very quickly.
You might be asking why doesn’t the bank pay the three smaller amounts and then just charge you one fee for the $600 dollar check?
As mentioned, the bank will tell you that they feel your larger check is more important.
Maybe that is true, but it could also be true that the bank would rather charge you $105 in overdraft charges instead of $35 dollars in fees.
Either way, you are stuck.
Also, the person or business that you wrote a bad check to may charge you an additional $35 dollar fee to cover the fees their bank will charge them for the bad check.
This will double your fees and they can escalate very quickly.
Keep in mind, it doesn’t even need to be your fault.
I worked for someone years ago that wrote me a bad paycheck…twice.
I had deposited the checks, as you do, without giving them much thought.
Then all of the sudden, the checks bounced.
My bank charged me two bounced check fees even though I wasn’t the one who wrote the checks.
I was lucky that these bad payroll checks didn’t cause me to bounce any checks that I wrote, but they could have.
I was also lucky that my employer took care of the checks and the fees.
Even so, it was a bad situation and made me look back in the eyes of the bank.
2. You might lose your checking account – Needless to say, banks frown on bounced checks and it is not uncommon to lose bank accounts over them.
If you can’t clear up this issue quickly or if non-sufficient funds are a pattern for you, you may have your account closed which is even worse than the check fee you had to pay for the bad check.
If you lose your account, you will find that it can be very difficult to open a new one at another bank.
This information is reported and any other bank or credit union will see that you had your account closed and won’t open a new one.
Then how do you get paid?
Most employers pay by direct deposit, but you won’t have anywhere for the deposit to go.
If you do get paid by check then you will have to go to a check-cashing business and they will charge you a pretty high fee to cash your check.
Needless to say, it is a big mess.
3. Your credit scores will take a hit – Your bad checks, negative balance, and closed accounts will be reported to the credit reporting agency.
Your credit score will go down which will affect all aspects of your life.
These effects can include:
- Not being able to get a job
- Not being able to rent an apartment
- Paying more for car insurance
- Not being able to buy a car
- Not being able to get a mortgage
You need to do what you can to protect and improve your credit score to make your life easier and less costly.
4. You could be arrested – Writing bad checks, even if you didn’t mean to, is a crime.
The check recipient or business owners you wrote bad checks to could decide to take legal action and report you to the police and that can lead to criminal charges.
Chances are if this is a first offense you won’t see jail time.
However, if this isn’t the first offense or you have has issues with the law before, you might receive a few days to a few months in jail.
Needless to say, this is not the outcome you want.
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How to Avoid Bounced Checks
There are a few ways you can keep yourself and your bank account safe.
1. Overdraft protection – Most banks have some form of overdraft protection that you can sign up for.
Oftentimes, this will be as simple as connecting your savings account to your checking account.
That way, if a check is presented for payment and you don’t have enough money in your checking account to cover it, the financial institution will take the money out of your saving account.
They may charge you a fee for this service but it is certainly better than having a bounced or rubber check.
2. Reconcile your bank account – Be sure to keep track of all of your checks and money coming in and out of your bank account.
Keep this up to date so you can look at your balance at any time and be secure in the knowledge that you know exactly how much money you have in your bank account.
That way, you won’t accidentally write a check or spend money that you can’t cover.
3. Use online banking – Chances are that your bank has an online banking system. They might even have an app for your phone.
Check your account daily to stay on top of your money and what has come in and out of it.
It’s not like the old days when you had to wait for your statement to show up in the mail once a month to balance your account.
There’s no reason to not know the status of your account.
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To Sum it All Up:
A bounced or rubber check is simply a check that is presented to your bank to be cashed but you don’t have enough money in your account to cover it. This will lead to bank fees, possibly having your account closed, and even jail time. Be sure to keep a close eye on your balance and take the time to reconcile your checking account so you never find yourself in this situation.