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.

Example of a Bounced Check

As an example of a bounced check, Henry writes a check for $500 to Sarah for services rendered. Sarah deposits the check in her bank account. However, when the check is sent to Henry’s bank for processing, it is discovered he only has $300 in his account. Henry’s bank declines to honor the check because the account balance is insufficient, and returns the check as "bounced" or "NSF" (Non-Sufficient Funds). Sarah’s bank then notifies Sarah that the check was not honored, and charges her a returned check fee. Henry may also incur a bounced check fee from his bank, and may face further legal or financial consequences if Sarah decides to pursue collection.

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.