What Does a Returned Check Mean?
Understand what a returned check means, its causes, financial impacts, and how to resolve or prevent them.
A returned check, often called a “bounced check” or “Non-Sufficient Funds (NSF) check,” occurs when a bank cannot process a payment because the account from which the check was drawn lacks sufficient funds or has other issues. This means the intended payment cannot be completed, leading to various consequences for both the check writer and the recipient.
Understanding Why Checks Are Returned
Checks are returned for several reasons. Insufficient funds are the most common, occurring when the account holder does not have enough money to cover the check amount. Other reasons include a closed account or a stop payment order issued by the writer.
A check can be stale-dated if presented too long after its issue date, typically six months. A post-dated check, written with a future date, might be returned if presented before that date. Discrepancies such as a signature not matching the one on file, or missing or incorrect information like an incorrect amount or payee name, can also lead to a returned check.
Financial and Other Impacts
A returned check carries financial repercussions for both the check writer and the recipient. For the check writer, banks typically charge a Non-Sufficient Funds (NSF) fee, often ranging from $20 to $50. The recipient may also impose an additional returned check fee. Repeated instances can negatively impact one’s banking relationship, potentially leading to account closure.
For the check recipient, a returned check results in a delay in receiving funds, disrupting financial planning. Their bank may also charge a “deposit item returned fee,” typically ranging from $10 to $25. It can also strain relationships between individuals or businesses.
Steps to Take When a Check is Returned
If you wrote a returned check, contact the payee promptly to explain the situation and arrange for an alternative payment method. Deposit sufficient funds into your account to cover the original check amount and any associated fees, as the check may be re-deposited.
If you received a returned check, inform the check writer immediately to discuss the issue and arrange for proper payment. Understand your bank’s policy regarding re-depositing returned checks, especially if the return was due to insufficient funds and funds are now available. If the issue persists, consider requesting an alternative payment method, such as a certified check or electronic transfer, to ensure guaranteed funds.
Strategies to Avoid Returned Checks
To prevent writing returned checks, maintain accurate records of your account balance by regularly reconciling bank statements. Utilize bank services like low-balance alerts to receive notifications when your account balance falls below a set threshold. Consider enrolling in overdraft protection, an optional service where your bank covers transactions that would otherwise overdraw your account. Always verify that sufficient funds are available before issuing a check.
For check recipients, implementing preventive measures can reduce the risk of receiving a returned check. For significant transactions, consider requesting alternative payment methods such as electronic transfers, certified checks, or cashier’s checks, which offer greater security and guaranteed funds. Be aware of the common risks associated with checks, especially from unfamiliar parties. Timely deposit of checks also helps, as checks become stale-dated after a certain period.