What Does It Mean If a Check Is Returned?

A returned check, also known as a bounced or dishonored check, occurs when a bank is unable to process a check for payment. This means funds cannot be transferred from the check writer’s account to the recipient’s account. This can lead to considerable inconvenience and financial repercussions for both the check writer and the recipient, disrupting financial planning.

Common Reasons for a Returned Check

One of the most frequent reasons for a check being returned is insufficient funds. This means the account from which the check was drawn does not contain enough money to cover the check’s amount. Banks will typically reject such a transaction rather than allowing the account to go into a negative balance.

Another reason for a check return is a stop payment order. This occurs when the check writer instructs their bank to prevent a specific check from being paid. Reasons for issuing a stop payment can range from a dispute with the payee to the check being lost or stolen. Such an order can remain active for a period, preventing the check from clearing.

A check may also be returned if the account it was drawn on has been closed. If the check writer terminates their bank account before all outstanding checks have cleared, any checks presented afterward will be returned.

Discrepancies or absences in the signature can also lead to a returned check. Banks verify the signature on a check against the one on file for the account holder to prevent fraud. If the signature is missing, does not match the specimen signature, or appears to be altered, the bank will typically refuse to honor the check.

Checks with incorrect dates, such as post-dated or stale-dated checks, can also be returned. A post-dated check is written with a future date, intending for it to be deposited later. However, banks are generally not obligated to wait until the future date to process the check. Conversely, a stale-dated check is one that has not been cashed or deposited within a typical timeframe, usually six months (180 days) from its written date.

Other technical errors can also cause a check to be returned. These can include issues like an incorrect or illegible routing number or account number, a missing endorsement, or the check being physically damaged. Banks also look for signs of alteration or if the item appears to be counterfeit.

Financial Impact of a Returned Check

A returned check carries financial consequences for both the person who wrote it and the person who received it. For the check writer, banks typically impose a non-sufficient funds (NSF) fee, also known as a returned check fee, for each instance. These fees can vary but commonly range from $20 to $70. If the bank covers the transaction despite insufficient funds, an overdraft fee may be assessed, which is often around $35. Beyond direct bank fees, the check writer might also incur charges from the recipient’s bank or from the merchant.

Repeatedly writing checks that are returned can negatively impact the check writer’s banking relationship. This can lead to the bank closing their account or reporting them to specialized consumer reporting agencies, such as ChexSystems. A negative record with such agencies can make it difficult to open new bank accounts in the future.

For the check recipient, a returned check means delayed access to their expected funds, which can disrupt their own financial planning. Their bank may also charge a deposit return item fee for processing the uncollectible check. While generally lower than the fees for the check writer, these fees can range from approximately $8 to $12. The recipient must then pursue alternative methods to collect the payment.

Addressing a Returned Check

When a check is returned, the check recipient should promptly contact the check writer to understand the reason for the return and arrange for alternative payment. If the check was returned due to insufficient funds, and the check writer confirms they have since deposited money, the recipient might consider re-depositing the check. However, re-depositing is not advisable if the check was returned for reasons like a closed account or a stop payment order, as it will likely be returned again.

The check writer, upon learning of a returned check, should immediately contact their bank to identify the specific reason for the return and inquire about any associated fees. If the issue was insufficient funds, they should deposit enough money into their account to cover the check amount and any bank charges. Communicating promptly with the check recipient is important to resolve the matter and provide an alternative payment method.

To prevent future occurrences, check writers should maintain meticulous records of their account balances and upcoming transactions. Utilizing online banking to monitor account activity and setting up low-balance alerts can help prevent accidental overdrafts. Establishing overdraft protection, which links a checking account to a savings account or credit line, can also serve as a safeguard.