Bounced Check

Frustration
Bad checks are frustrating for everybody. UpperCut Images/Getty Images

A bounced check is a check that was used for payment, but ultimately rejected because the check writer did not have sufficient funds.

Why Checks Bounce

When you pay with a check, the check is generally accepted as if it's going to clear without any problem. The payee (or recipient of the check) doesn't really know how much money the check writer has in checking, but most people don't make a habit of bouncing checks, so checks are often accepted on faith.

In fact, it's possible to write a check for any amount you want -- whether or not you really have the money. Writing rubber checks intentionally is generally illegal, and a bad idea for numerous reasons, but it's extremely easy.

Sometimes checks bounce by accident. A check writer might think he has funds available, but withdrawals reduce his balance without him knowing it. For example, automatic electronic payments, outstanding checks that hit an account unexpectedly, and large debit card holds can cause checks to bounce.

When the check is deposited or the payee attempts to cash it, the check goes to the check writer's bank (in paper or electronic form). The bank will verify if the checking account has funds available, and pay the check if all is well. If there are insufficient funds in the account, the bank may choose to reject the check and return it to the payee.

Avoiding Bounced Checks

Both check writers and check recipients can take steps to prevent checks from bouncing.

Check writers should keep a close eye on checking account balances, using websites, apps, and even text messaging to figure out how much money is available in checking. It's a good idea to leave a buffer for any items you forget, as well as for surprise expenses. If you really want to avoid problems, balance your checking account regularly so you can always predict how much you'll have available.

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 are always taking a risk, but it's possible to manage the risks. A simple step is to contact the check writer's bank and attempt to verify funds before accepting or depositing the check. Some banks will cooperate, but others won't (you can also use commercial services that track checking accounts). It also pays to be selective about who you accept checks from. For some businesses, it's necessary to take risk, but it's worth following best practices when taking payments by check.

Fees

Rubber checks lead to fees -- for everybody involved. If you write a bad check, your bank will charge you fees, and the person or business that you wrote the check to will most likely charge additional fees.

If you receive a check that bounces, you'll also have to pay: your bank will ding you for depositing a bad check, even though it wasn't your fault. In many cases you can pass these charges on to the person who wrote the check, but you have to follow certain rules to do so.

Plus, you never know if you'll get anything after a check bounces.