Checks are still widely used across America to pay for goods and services. But Americans pay billions of dollars a year on fees because of bounced checks and overdrafts.
Are you contributing to that?
So, what is a bounced check? We take a look, tell you what they mean and how to avoid them in the first place.
What Is a Bounced Check?
A bounced check is a check which is returned (or bounced) back to the original sender. This happens because the funds are not available in the check writer's account to process it.
What Happens When a Check Bounces?
When a check bounces, there are fees involved. The person that wrote the check and the person that tried to deposit it could each be charged anywhere from $10 - $50 for a bounced check.
Not to mention any other fees for going into your overdraft, or consequently not having the money you thought you would for other payments. For example, what if your down payment check bounced for a real estate transaction?
Depending on your state, there could also be extra compensation to pay the person you gave the bounced check to.
Bouncing checks could also indicate fraud. If it happens too often you may find your account gets closed and you could be investigated.
It's also illegal to write bad checks on purpose, that you know will bounce.
How To Avoid Bouncing Checks
There are several ways to avoid bouncing checks. Both as the check writer and the person being paid.
Writing Checks
Balance your books. Keeping track of what's going in and what's going out of your account will mean you always know how much you have available.
If you don't have the money, don't spend it.
Use a budget to keep track of all your regular expenses. If you know where your money is going before you even get it, you can keep some extra in your account. Plan for unexpected costs or spending money.
Stop using automatic and electronic payments. When things are as easy as a quick click or a swipe on your phone, you can lose track fast.
Do everything manually and you'll soon remember how many times you've deposited or spent funds and how much you have at any time.
Get an overdraft line of credit from your bank. This should be a last resort or a safety net. If you can avoiding bouncing checks at all, that's always best.
Receiving Checks
Some banks will let you verify the funds of a check writer before you deposit it. If not, you can always check with the person that gave you the check before accepting one.
Businesses can use databases to look at checking account histories. This helps determine if a check is likely to bounce.
Individuals can simply be selective over who they accept checks from. If you don't know or trust someone, don't accept a check.
Keep Reading
We've answered the question what is a bounced check? Now you know how to avoid writing them and how to avoid receiving bad checks.
You can find more financial questions answered, money tips, and banking articles on the rest of our website. You could even sign up for our Bootstrap Business Blasts email to learn more about checks and banking.
