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Small Business Articles - Banking

How do overdrafts and bounced checks happen?
December 13, 2005 - information from Citizens State Bank

Overdrafts and bounced checks happen when you attempt to access checking account funds for more than the balance currently in your checking account. Overdrafts can occur when you write a check, withdraw money from an ATM, use your debit card to make a purchase, make an automatic bill payment or make another electronic payment for more than the amount in your checking account.

Your bank (or other financial institution) has the option to either pay or refuse to pay the amount overdrawn. If the financial institution pays even though you don’t have the money in your account, you may be charged an "overdraft" fee. If your bank returns your check without paying it, you may be charged an insufficient funds fee. Typically, the person or company that you wrote the check to (house payment, utility, a store, etc.) will also charge you a "returned-check" fee in addition to the fee your bank charges you.

To avoid overdraft and bounced-check fees:

  • Promptly record all deposits and payments (checks, ATM transactions, automatic payments, debit card expenses, etc) in a check register.
  • Regularly balance your account using internet banking and/or the monthly statement mailed to you.
  • Be sure to subtract any fees charged for using ‘foreign’ ATMs, etc.
  • Keep an eye on your account balance. Remember that some checks and automatic payments may not have been received by your financial institution yet (it can take up to 5 days for a transaction to ‘clear’).
  • You can find out which payments have cleared and check your balance by calling your bank or by checking online or at an ATM, but remember that your account balance will not any transactions that have not ‘cleared’ the bank yet.

Sometimes mistakes happen. If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees and charges from your bank. Your bank may also offer some overdraft options to help you:

  • Check to see if your bank has ‘overdraft protection’ where funds can automatically be transferred from your savings account or loan if you overdraw your checking account.
  • Check to see if you bank offers ‘overdraft privilege’ where the bank allows you to overdraw your account (typically up to $500). In this case, your bank will pay for any transactions they receive and charge you a $30 fee per transaction, but they will not return any of the items unpaid. This saves you expense and embarrassment merchant’s returned-check fee, and you will stay in good standing with the people you do business with. Remember though that ‘overdraft privilege’ is a short-term fix as you will be expected to deposit the funds within 30 days of overdrawing your account.

Citizens State Bank, a locally owned and operated community bank, was established in New Baltimore MI in 1922. Citizens State Bank specializes in serving small to medium-sized business owners in Macomb and St. Clair counties. To set a FREE No Obligation appointment to analyze your current merchant service program or to learn more about merchant services, contact Scott Orts at Citizens State Bank at 586.468.7500. Learn more about Citizens State Bank’s other products and services at www.mycommunitybank.com.

© 2005 All Rights Reserved. No part of this article may be published without advance written approval.


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