There are still occasions when you receive checks as payment or as a gift. Checks are certainly a safer way to send money through the mail and chances are your great Aunt Martha still sends you that annual birthday check. While much of banking and financial transactions have gone electronic, accepting checks is still something to consider.

David Goehring / Flickr |

David Goehring / Flickr source

For the giver, checks are a way to not only keep money safe but also are used as a method of proof of payment. A canceled check can be used to show payment was made and many banks even make those canceled checks available through online banking service so should a problem arise, you actually have a visual copy of the cashed check.

The method for cashing checks has advanced. Back in the day, it could take up to a week or longer to process the check and transfer the funds. Because electronic transactions are possible these days, it may only take a few minutes or a day to have your check cashed by its recipient. To avoid getting hit with overdraft fees on your bank account, it is wise to never write a check your bank can’t cash. But what happens if you deposit a check that bounces?

The rubber check dilemma

The term ‘rubber check’ may sound old-fashioned but it is still relevant today. If you receive a check and it is written on an account with insufficient funds, the check will bounce as if it were made of rubber.

The first problem to arise will be the fact you are out of the money that was in the deposit. If the check doesn’t clear, you cannot add that amount to your checkbook for use. Additionally, you’ll be charged a “returned item fee” for a failed check deposit.  The fee is often the same as the cost of an overdraft fee — roughly $35. To most customers, this fee is unfair: you are being penalized for someone else’s mistake — or intentional act.

Depending on your relationship with the check-writer, you may or may not be able to get your money back. If it is an honest mistake, the check-writer likely will be embarrassed and happy to reimburse you the check amount plus fees. People do make simple bank errors but it is advisable to ask for cash next time. You do have a right to ask for the money back if the check was meant to cover a purchase or other financial transaction. In the case of a gifted check, that is more of a personal decision you will have to make.

How banks handle checks

There may be some check-writers that intentionally write checks on accounts without enough money to clear just to get people off their backs because they know a deposit is coming soon. Regardless of what the future holds, their check may not clear because of how some banks process checks.

Many banking institutions will process checks on an account in descending order, with the largest check amounts being deducted first. Rather than your largest check being rejected and having only one fee assessed, banks count on the largest amounts clearing so that multiple smaller amount checks do not. Banks can then take several NSF fees which have grown substantially in the last few years.

In the event that you are on the wrong end of a bad check, contact your bank as soon as you are notified of a bad check. In some cases, if you ask nicely, the bank can waive the fee. If you have a habit of depositing bad checks into your account, the fees may stand — and the bank may take other measures to ensure that it doesn’t happen again (e.g., freezing check-writing capabilities or closing your account altogether). Furthermore, frequent encounters with bad checks may lead to marks on your ChexSystems report, the banking equivalent of a credit report.

Don’t let it happen

If you are in a position where you often accept checks from people from strangers, it may be well worth your while to contact the bank from which the check is drawn and inquire about the availability of funds. You may be able to cash the check at the check-writer’s bank, but you may have to pay a check-cashing fee for being a non-customer. You may also want to consider a no-check policy outside of family and friends.

If you’ve ever gotten a bad check, you know the frustrations it can cause. For this reason, always make sure your account is in order before writing a check — whether it is to a friend or when you are making a bill payment. Writing a bad check will incur much higher penalty fees and could even create legal trouble. Overdraft protection can prevent your from one issuing a rubber check (but you may incur overdraft or overdraft-protection transfer fees).

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