What is a bounced check? It’s one of those terms that a lot of people have heard, but not as many can explain. And the impacts of a bounced check can seem equally mysterious!
Of course, it’s important to understand all of these things, so you can avoid being put in a messy financial situation. Whether you’re the writer or depositor of a bounced check, it can have impacts on your finances.
So much in life is unexpected, but a bounced check doesn’t need to be one of them. In this article, we’ll answer questions like: what is a bounced check? What happens if a check bounces after I deposit it? How can I avoid writing a check that ends up bouncing? Let’s start learning!
What is a bounced check?
A bounced check, also known as a “rubber check,” is essentially a check that cannot be honored by a bank. This typically happens when the account holder has insufficient funds to cover the amount of the check.
Less commonly, a check can bounce if the check writer tells the bank to “stop payment” on it—even if there is enough money in the account.
When someone writes a check, they are essentially instructing their bank to transfer a specific sum of money from their account to the recipient’s account.
However, if there isn’t enough money in the account to fulfill this request, the check bounces. In turn, this can lead to a cascade of consequences for both the payer and the payee.
Bouncing a check is not always intentional. It can happen for various reasons, such as an unexpected expense, a miscalculation of available funds, or a delay in depositing money into the account. While these situations can be genuine mistakes, they can still carry financial repercussions.
What happens if a check bounces?
Your check can bounce when the amount in your checking account is less than the value of the check amount you wrote. If the receiver tries to cash or deposit your check before there’s enough to cover the full amount, the check will bounce due to “non-sufficient funds” (NSF).
When you write a check that bounces, you’ll probably be a bit embarrassed. While it’s not always your fault (maybe an automatic withdrawal happened before an automatic deposit cleared), you’ll still have to deal with the consequences.
Let’s look at a few potential things that can happen.
Possible fees
One of the most immediate drawbacks of a bounced check are the fees that come with it.
Non-sufficient fund fee (aka NSF fee)
A non-sufficient funds fee is exactly what it sounds like. A financial institution charges an NSF fee when a check cannot be honored due to insufficient funds in the account. Normally, this type of returned check fee applies to the account holder who wrote the check.
Each state decides the fees owed for check payments that are returned for lack of funds. These “recovery costs” generally range from $20 to $40. Most of the time, you’ll pay a flat rate, but a few states base the fee on a percentage of the amount of the check.
Fees for non-sufficient funds are like a bad chicken-or-egg scenario. If you wrote the check and truly don’t have enough money to cover the cost, then with the new fees, you can go into debt over not being able to pay. That makes it even harder to right the wrong and pay the original amount you owed.
Merchant fees
In certain cases, merchants may charge additional fees for bounced checks. These fees are imposed to compensate for the inconvenience and potential costs incurred by the merchant when a payment does not clear.
$30 is the average bounced-check fee from merchants. That said, in most states, they’re allowed to charge up to $40.
Overdraft fees
If you don’t have enough money in your account, but your bank covers the check for you instead of bouncing it, you may face an overdraft fee instead of an NSF fee.
When an account holder attempts to make a payment that exceeds their available balance, the bank may cover the difference through overdraft protection. This service is designed to prevent declined transactions due to insufficient funds.
However, this service often comes with a price—the overdraft fee. This fee applies when the account balance goes below zero, and the bank extends credit to cover the transaction.
Overdraft fees can also come into play if you deposited a bad check and didn’t realize it. You may assume you have more money in the account than you actually do, because the check bounced. Then, you might accidentally overdraw your account and incur a fee.
Some banks offer overdraft alerts or allow customers to link their accounts to savings to prevent overdraft situations.
Impact on your credit report & banking relationships
While your primary credit report will likely remain unaffected by your bounced check, some “alternative” checking account reporting companies, like ChexSystems or Telecheck, might ding you.
As a result, banks can deny your request to open a checking account if you have any red flags from these companies. In this case, be sure to ask for the report to make sure there aren’t any errors. You can also ask for a free report if you receive an “adverse action” notice, which the bank has to provide you if they turn you down.
Since a negative banking history may make it more challenging to open new accounts, it can also make it hard to build credit.
In the case of a loan payment, a bounced check is a bigger deal and could affect your main credit score. When your check bounces, it means that the transaction technically never went through. Unless you tried to pay early, that likely means you either missed a monthly payment or were late.
This unpaid balance could get you in trouble with a collection agency, which might report you to the credit bureaus. This is a fast track to lower credit scores.
Late payments will stay on your record for seven years, which can affect other loan eligibility and even insurance rates. Your top priority should be to get back on track with your original payment schedule.
Potential legal action against you
In addition to your credit score, debt collectors could mean bad news legally. Just like the recovery fees, each state determines the legal action you may face. You could be dealing with civil or criminal charges, ranging from a misdemeanor to a felony.
With civil charges, you’re in store for even more fees. (Remember that horrible cycle of being charged for having no money? It gets worse.) You might be able to avoid these charges if you can plead your case to the recipient before they file a lawsuit.
If you don’t reach them in time or they aren’t sympathetic to your situation, you’ll probably have to pay legal fees for yourself and them, as well as additional penalties.
In a criminal case, even higher fees might be in your future, along with a mark on your permanent record. In extreme cases, you might even go to jail. Usually, the amount of the check determines whether it is prosecuted as a misdemeanor or a felony.
If someone is threatening you with criminal charges, be sure to seek legal counsel before things escalate.
Expert tip: Always negotiate fees
In some cases, banks (or merchants) may be willing to waive certain fees associated with bounced checks, especially if it’s a rare occurrence.
Contact them, explain the situation, and inquire about the possibility of fee waivers. Be gracious and understanding, even if they aren’t able to accommodate you this time.
Establishing a good rapport with your financial institution can lead to more favorable outcomes in lots of situations. Whether it’s waived fees, higher credit limits, or a better rate on a loan, it never hurts to get in touch and ask!
Steps to take if you bounce a check
Discovering that a check you wrote has bounced can be a stressful situation, but it’s essential to approach it with a proactive mindset.
In this section, we’ll outline practical steps to take if you find yourself in the unfortunate circumstance of having a check bounce.
1. Contact the person you wrote the check to (and the bank)
It may feel like an uphill battle, but you need to take fast action. Contact your bank and the payee (the person you gave the check to) as soon as you realize the check will bounce or has already. Make sure you’re all on the same page—that you’re going to make things right as quickly as possible.
2. Deposit funds as soon as possible
Deposit funds into your account as soon as you’re able. Decide if you can pull from a different account or even borrow from a loved one. Speed is key here. If you’re lucky, you’ll be able to deposit enough funds before the check officially bounces.
If you have multiple bank accounts at the same financial institution, you might also be able to arrange for your bank to pull money from your savings account in the case of insufficient funds in your checking account.
Note: An electronic transfer or check deposit might be immediate, or it could take days to hit your account. To be extra safe, bring cash to your bank branch in person.
3. Figure out what you’ll owe in fees
Next, figure out how much you’re going to owe in returned check fees. Work to bring your account current ASAP to avoid any additional fees.
While you’re at it, look into overdraft protection to avoid facing this situation again. With this protection, your bank will cover the amount of your bad check (up to a certain amount). Then, you’ll simply pay the overdraft fees to the bank, rather than suffering any additional processes or penalties.
The overdraft fees might even cost you less than bounced-check fees without protection, which you would possibly owe to retailers and your bank.
How to avoid having a bounced check
With technology speeding up the exchange of funds, you can no longer write a check and cross your fingers that the recipient will wait a few days to get to the bank. After all, they might just snap a picture from their phone to deposit it!
That said, if you realize after writing the check that you’re not in the clear, consider reaching out to the person or business and asking for a bit of a grace period. They may be willing to wait to process the check until you can refill your account with funds.
However, the best line of defense is good personal finance habits from the get-go. Here are a few tips that can help you avoid writing a bounced check in the first place.
Create a budget
Plan, then plan some more. Map out recurring expenses and income. Leave a cushion for unexpected costs. (You might not know the amounts and causes, but you can bet on something unforeseen popping up. Pencil that in.) Your budget is a useful framework to keep you in line with your priorities and means.
Build up your savings
In your budget, consider how you can make room for savings. Every little bit helps and it adds up over time. Focus on building up your emergency fund and rainy day fund.
Your savings will help you avoid a crisis that sets you up for writing a bad check. It’s so reassuring to have money to fall back on when things go awry.
Balance your checkbook
Keep your checkbook in check by setting money dates with yourself, and potentially your partner if you share bank accounts. Balancing your checkbook is especially important if you use a debit card or share an account with someone because your account balance may be different from when you last looked.
You need to have a handle on what’s going out and what’s coming in to see if your budget and savings are on track.
What happens if I deposit a check that bounces?
If someone else wrote you a check that bounces, it means the funds will never settle, or “clear,” in your account.
The money might show up temporarily (depending on your bank’s procedures for pending deposits), but it will leave your account once the check officially bounces. Sometimes, the bank will also charge you a returned check fee or impose other penalties for depositing the bad check.
Your bank may notify you about the bounced check, but they are not required to. It’s important to monitor your own accounts to make sure the funds from a check clear in your account. This way, you can also protect yourself from spending money you don’t actually have (hello, overdrafts!).
Do you still get paid if a check bounces?
No, you won’t get paid if a check bounces. Since the money from a bounced check will never clear in your account, the person who wrote it will still owe you the money. They’ll need to send another payment—whether this is a new check or a different form of money transfer.
If you deposited a check that bounced, get in touch with the person who was trying to pay you. Hopefully, they’ll work with you to resolve it quickly. In a worst-case scenario where they refuse to reissue payment, you might have to pursue legal action.
Do bounced checks affect your credit?
What happens if a check bounces as far as your credit is concerned? Whether you were the payer or payee, can it ding your score?
The good news is, bounced checks themselves do not typically appear on credit reports. Credit bureaus primarily focus on credit-related activities such as loans, credit card payments, and debt collections.
However, as we touched on earlier, the consequences of bounced checks can indirectly affect credit scores if they lead to a damaged banking relationship or other financial problems.
In extreme cases where a bounced check remains unresolved, the payee or the bank may take legal action to recover the funds. If the matter escalates to collections or court, your credit score can suffer significantly.
To protect your credit, it’s crucial to address bounced checks as soon as you can.
Planning will help you avoid having a bounced check
Living within your means is important for your financial and mental health. So when times are tight, be extra sure you have the funds before writing a bad check. When your check bounces, it costs you more time, money, and energy in the long run.
Even if you work hard to avoid having non-sufficient funds in your account, accidents can happen. If a bounced check leaves your checkbook, don’t despair! Be proactive in handling the aftermath as quickly as possible, resolve the situation, and move forward with renewed confidence.