Rubber Checks can be Costly

A bounced check is one that is returned (unpaid) to the depositor. In other words, if you write a check, but you do not have enough money in your checking account to cover it, that check is considered an overdraft. The payee, whose name you have written on the check, will try to cash or deposit the amount in his own account. His bank will send the check to your bank for funds, but your bank will return (bounce) the check back as unpaid for insufficient funds and charge you a service fee/penalty for their trouble.

Writing checks that bounce will result in overdraft fees and damage a person’s financial reputation. In fact, if a bank customer repeatedly writes bad checks, the bank may freeze, close, or cancel his account.

Most U.S. banks belong to ChexSystems, a national computerized network. Irresponsible banking behavior, such as writing overdraft checks, is entered into the ChexSystems database. Banks, lending companies, and even employers can access this information, which is retained for at least five years. Who says writing a few bad checks can’t harm one’s future finances?

Individuals can take several practical steps to prevent overdrafts, even by accident.

Spend only what you actually have. This seems obvious, but an astonishing number of people continue to write checks, even after their funds are depleted. When we run out of money before we run out of month, this can be a temptation. Budgeting is essential!

If you run out of funds, temporarily, check with your creditors. It may be safer to hold off on paying a bill for a few days (if possible) than to write a bad check. A late bill may result in a fee, but a bad check can result in a fee and ruin your credit standing for a long time.

Record all debit card transactions. Unlike credit cards, which bill monthly for all charges, debit card charges result in immediate withdrawals directly from your checking account. It is simple and convenient to flash these cards at checkout counters, but it is essential to enter all charges in your checkbook register. Who needs to be surprised by a bunch of bounced checks, just because we neglected to log earlier charges? When the bank statement comes, who wants to discover forgotten charges and overdrawn accounts?

Club memberships, internet services, cable television subscriptions, and other regular monthly charges may be automatically charged to checking accounts. This is a most convenient arrangement, as long as you remember to enter these in your account register and reserve funds to cover them. We like to keep a list of these regular charges with our monthly bills and enter them as we pay our other invoices. That way, we are never shocked to find that we did not have as much left in our accounts as we had assumed.

Avoid the ATM! The automated teller machines (ATMs) at the bank, the mall, the airport, and elsewhere are not money machines. Every dollar (and service fee) is applied immediately against your account. As tempting as this seemingly free money is, it costs! Track cash spending carefully, so you will know exactly how much you have left in your checking account.

Balance your checkbook regularly. Keep a running total of all spending and deposits in your written register. Each month, compare your totals to the bank’s statement. Add interest, if you earned any. Record all fees, new check printing charges, late penalties, and other costs.

If your financial institution offers online banking, sign up. This secure system allows you to view current balances, observe all account activity, and even transfer money between accounts online.

Link your savings and checking accounts automatically. Most banks will allow you to do this, if you have multiple accounts. If your checking account runs dry, the bank will automatically transfer sufficient funds from your savings account. Be sure to ask your bank if they will assess a fee for this service.

Consider linking your checking account to a credit card. Some banks will enable you to do this, if your credit card comes from their institution. If your checking account becomes depleted, additional funding may be drawn, as cash advances, against your credit card. Be advised, however, that cash advances carry extremely high interest rates, which usually begin accumulating immediately (whether you pay the full balance at the end of the month or not).

Consider obtaining checking account protection. Many banks will offer this for a fee. Ask your bank about their terms and costs, which may be based on the number of overdraft transactions you have, or their amounts.