Almost everyone has bounced a check at one time in
their life. However, some people do so more regularly.
The cost for bouncing a check is expensive, usually
ranging from $25 - $50. Making the problem worse is the
manner in which banks process your checks.
For example, suppose you
had $500 in your checking account and wrote five checks
totaling $600. The five checks are for $300, $150, $75,
$50, and $25. If all of the checks arrived at the bank
the same day, the bank could clear the last four checks
and bounce the one that is for $300. However, it is more
probable that the bank will clear the $300 and the $150
checks, and bounce the remainder being that the next
largest check ($75) is not going clear. As a result, you
are going to have to pay four non-sufficient funds fees.
The reason why banks use this formula for clearing
checks is that they assume that the larger checks are
the most important payments, i.e. car loans, mortgages.
**Even if you have
excellent credit, overdrafting your bank account will
How does overdraft protection work?
Overdraft protection is great for people that have a
habit of bouncing checks. In order to receive this type
of protection from your bank, you are going to need to
have two accounts with your bank, i.e. savings, equity
line or a credit card. When you overdraw from your
checking, the bank will use funds from one of your other
accounts to make the payment for you. The bank
guarantees payment of your checks as long as you have
sufficient funds in any one of your other accounts. Most
banks will charge a fee when this occurs. However, the
fee is much less than those associated with NSF. In
addition you will avoid having to pay the bounced-check
fee charge from business you wrote the check to.
It is important to understand that in order you must
sign up for overdraft protection with your bank. They
will not automatically service you just because you have
multiple accounts with them.
What is overdraft
privilege (or bounce protection)?
This type of coverage is automatically provided to
customers in the event you overdraw from your account.
The easiest way to difference bounce protection from
overdraft protection is that it is not linked to any of
your other accounts and your are automatically enrolled.
In fact, you do not even need to have more than one
account with your providing bank.
Many consumer groups are
unwaveringly against the overdraft privilege program.
Banks do not guarantee that your check is going to be
paid. It is very common for banks to offer bounce
protection only for checks that overdraw your account
between $100 - $1,000. If your overdraft is more than
that, the bank will likely opt not to pay for your
The overdraft and any associated fees will have to be
re-paid within 30 days, or even two weeks. If you don't
pay within the allowed time-frame, your account will be
send to a collection agency.
Your bank will impose a flat fee foe NSF as well as a
daily fee of $2 - $10 until your account is brought into
For example, suppose you overdraw your account by $75
and it takes you 20 days to pay it back. If your banks
charges a $40 NSF fee and $10/day, you will end up
having to pay the hefty sum of $240 plus the amount you
overdrew. This scenario makes it simple to understand
why many consumer groups consider 'bounce protection' as
short-term predatory lending by banks.
Another issue that often occurs with this type of
coverage is that banks will often include your overdraft
privilege limit when consumers make ATM or phone balance
inquiries. As a result, consumers think they have more
money available in their account than they actually do
and overdraft their accounts.