What is a returned check and what should I do about it?

Young woman sitting outside, wondering what to do about a returned checkImage: Young woman sitting outside, wondering what to do about a returned check

In a Nutshell

Returned checks can happen if you write a check when you don’t have enough money in your account to cover the payment. Bouncing a check could mean you face fees from your bank and the payee. It’s important to fix the situation quickly and take steps to prevent it from happening again in the future.
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A returned check is the paper equivalent of a declined credit card.

But while the worst result of a declined credit card might be a bit of embarrassment, a bounced check can have bigger consequences. Banks and the merchants generally can charge fees to handle returned checks, and you could even wind up in legal trouble.

But there are steps you can take to remedy a bounced check. Here’s what you can do if you wrote a bad check or you received one — and how to avoid this situation in the future.

What is a returned check?

Generally, a returned check is one that a bank declines to honor — typically because there’s not enough money in the check writer’s account to cover the amount of the payment. You might know this situation as a “bounced check,” while the bank calls it “nonsufficient funds,” or NSF.

When might a check bounce?

When you don’t have enough funds in your checking account to cover a check, then the check can bounce. This is typically an honest mistake. For example, you may have forgotten that you scheduled an automatic payment, or an expected deposit didn’t hit your account in time.

There are other reasons a check might be returned. A financial institution may return the check if you ask the bank to stop payment, if the recipient tries to deposit it months after the date written on the front, or if you post-date a check. And if any critical information is missing on the check, such as a signature, the bank might reject it then, too.

Some people might intentionally write a check despite knowing they don’t have sufficient funds in their account to cover it. This is generally against state law.

What are some consequences of having a check returned?

Whether you intended to write a bad check or not, having a check returned can cause you trouble. Here are some of the problems you may encounter.

Bank penalties and consequences

Your bank may charge nonsufficient funds, or NSF, fees and take them directly out of your account, even if it causes your balance to dip below zero. NSF fees vary by bank, but a Bankrate survey found the average is around $33. The bank may also decide to close your account, which could hurt your chances of joining another bank or credit union.

Charges from check recipient

You’ll also likely owe a returned check fee to the merchant or person who received the check. Depending on the state, the recipient may charge you between $20 and $50 or a percentage of the check amount, according to payment processing company VeriCheck. The payee may also take other action, such as suspending a service.

Negative banking history

Generally, financial institutions don’t report returned checks to the national credit reporting agencies. But they may report bounced checks to specialty reporting agencies, such as Early Warning Services and ChexSystems. These agencies specialize in checking information. Having a negative record with these agencies may make it harder for you to open a bank account in the future.

You might also find yourself in trouble with the law. In some states, intentionally writing a check without having the funds in your account could be considered a misdemeanor or a felony — and there are penalties. The details depend on local laws and the circumstances, such as the amount of the check and whether you eventually paid the money as agreed.

Potential credit hit

Financial institutions usually don’t report bounced checks to credit bureaus such as Equifax, Experian and TransUnion. But the payee might. For example, if the check was for a loan payment, the lender may treat it as nonpayment and could eventually report the missed or late payment to the credit bureaus. The negative information on your credit reports may lower your credit scores.

What should I do if I have a check returned?

If you wrote a bad check, it’s important to act right away.

  1. Make a deposit to cover the payment and any bank fees. Merchants may submit bounced checks for payment more than once. Put money into your account to cover the amount in case the merchant resubmits the check. And you’ll want to have enough in the account to cover any bank fees that might arise.
  2. Communicate with the payee. Hopefully, you can tell the payee you’ve made a deposit to cover the returned check and any associated fees. Or, if you’re not able to pay right away, you may be able to negotiate a payment plan with the payee. Either way, it’s important to communicate with the recipient to help minimize the negative impact of a bounced check.
  3. Address bank fees. Banks can take fees directly out of your account. But you can ask your bank to waive the fees. It’s not obligated to let you off the hook, but if you’ve got a good history with your financial institution, it may make an exception. You’ll never know unless you ask.

What should I do if I receive a bad check?

The returned check could be an honest mistake — and in that case, it should be easy to sort out. But if you can’t get payment, the law is generally on your side. Here are some steps that may help you recover your money if you receive a bad check.

  • Contact the check writer. Look for a phone number and current address listed on the check. Then, contact the check writer and ask them to pay the money as agreed. You may be able to work things out with a phone call. But if that doesn’t help and you think things are headed to court, you may need to send a letter demanding payment — some states require you to contact payors by mail when a check bounces.
  • Try depositing the check again. Ask the check writer if it’s safe to redeposit the bounced check. Or, you can contact the bank on which the check is drawn to see if funds were added in the account to cover the payment.
  • Seek legal action. If you still haven’t received payment, then you may need to take the check writer to court. The process varies by state or local law. In some states, you may be able to sue right away for the amount of the check. Or, you may need to send a letter before suing if you’re also seeking damages. Pursuing a criminal complaint may also be an option.

Next steps: Tips to avoid bouncing checks

You might not be able to do anything about a check that’s already bounced — except make good on the payment — but there are steps you can take to prevent this from happening in the future. 

  • Balance your account. The best way to avoid returned checks is by monitoring your bank account to keep an eye on deposits, fees, automatic payments, debit card transactions, and other types of payments or withdrawals. Many banks offer online tools to help people monitor their checking accounts.
  • Avoid post-dating checks. Your state may allow post-dating, or writing a check for a later date when you expect funds to hit your account. But banks and credit unions can deposit your check as soon as they receive it — they have no obligation to hold it, according to the Consumer Financial Protection Bureau. So it’s a good idea to write checks only when you know the funds are in your account.
  • Opt into overdraft protection. When you opt into overdraft protection, you allow the bank to cover transactions even if it causes your balance to drop below zero. The bank will usually charge a fee for this service, which averages about $11. Without overdraft protection, the bank will simply decline the transaction — but the merchant might charge you a fee for the bounced payment.
  • Link your checking account to your savings account. Linking your accounts will allow your bank to draw money from your savings account if you don’t have enough in your checking account to cover a transaction. But be aware that banks may charge a fee for linking accounts. And you’ll need to keep an eye on both account balances to ensure you don’t run out of funds in either.
  • Keep a cushion. It can be difficult to keep track of the money coming in and out of your account, and mistakes are bound to happen. One way to prevent surprise overdrafts is to keep extra money in your account at all times.

About the author: Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma, Reviewed.com, U.S. News & World Report, and more. Her favorite topics include maximizing credit card rewards and budgeting. Wh… Read more.