What Is Floating a Check and What Are the Risks?

Floating a check refers to writing a check for an amount greater than the current balance in a checking account. This action is taken with the anticipation that sufficient funds will be deposited before the check is presented for payment and clears the bank.

Understanding Floating a Check

Floating a check involves exploiting a temporary delay, known as “the float,” in the banking system. This delay occurs between the moment a check is written and when the funds are actually debited from the payer’s account. During this period, the funds may appear to be available in the account, even though they are technically earmarked for the outstanding check. The practice relies on the time it takes for a paper check to be processed and to fully clear. While digital payments have reduced the prevalence of this delay, it remains a factor with traditional checks.

Reasons for Floating a Check

Individuals often float checks due to immediate financial shortfalls or an expectation of soon-to-arrive income. This can happen when a person writes a check knowing their paycheck or another deposit will cover it before it clears. The motivation is typically to manage a temporary cash shortage, bridging the gap until anticipated funds arrive. This approach, however, depends entirely on precise timing and the swift arrival of expected deposits.

What Happens When a Check is Floated

If the anticipated funds do not materialize before a floated check is presented, the check will typically “bounce” due to insufficient funds. Banks may impose various fees on the account holder. An overdraft fee, averaging $27 to $35 (up to $50), may be charged if the bank covers the transaction, pushing the account balance negative. If the bank declines coverage, a non-sufficient funds (NSF) fee, also known as a returned item fee, will be assessed. These fees generally range from $27 to $40 per incident.

Consequences extend beyond fees from the payer’s bank. The recipient of a bounced check may also incur a returned check fee from their bank, often $20 to $40. This can cause inconvenience and financial difficulty for the recipient, potentially damaging relationships. If the same check is presented multiple times, the account holder may face multiple fees for each attempt.

Frequent bounced checks can lead to more severe repercussions for the account holder. Banks may place restrictions on the account, such as limiting check-writing privileges. In serious cases, a bank might close the account entirely due to insufficient funds or too many overdrafts. Such closures can be reported to consumer reporting agencies like ChexSystems, making it difficult to open new bank accounts.

Writing checks with known insufficient funds can also have legal implications. While not all instances lead to criminal charges, repeatedly writing bad checks with intent to defraud can be considered check fraud. Depending on the amount involved and the frequency, this could result in misdemeanor or even felony charges, potentially leading to fines, restitution, or imprisonment.