What is a Bounced Check?

A bounced check is a check that does not have a sufficient amount of cash in the underlying bank account to support the payment, so the issuing bank refuses to honor it. When a check bounces, the issuing bank typically charges the writer a fee. In addition, the entity cashing the check will also be charged a fee. When a business finds that a customer's check has bounced, it usually stops granting credit to that customer, requiring cash in advance for all future payments.

Impact of Overdraft Arrangements on Bounced Checks

When an issuer has an overdraft arrangement with its bank, checks can be written that do not have sufficient supporting funds and yet will not bounce, because the issuing bank provides the additional cash. A variation on the concept is for the bank to link the check writer’s checking account to a savings account, and automatically move funds over from the savings account to pay for any checks that would otherwise bounce.