Rubber Check Bites the Hand That Bounces It

By KATHY M. KRISTOF

July 16, 1995 12 AM PT

It’s such basic financial advice that few experts bother to mention it anymore: Don’t bounce checks. If you do, it will cost you. Dearly.

You know that, right? Everybody does. Yet, inexplicably, some 457 million checks bounce each year.

“It’s a common problem,” says John Hall, a spokesman with the American Bankers Assn. in Washington. “I mean, here I am at the Bankers Assn. and I’ve bounced a check before. We all make mistakes.”

They can be costly mistakes. U.S. banks now charge between $10 and $25 for each bounced check, Hall says. The average bank charges $16 per check, according to a survey by Sheshunoff Information Services in Austin, Tex.

In addition, companies that receive bad checks are likely to charge you a fee, too. How much? That depends on who got your bounced check. Retailers typically mimic the bank charges, with bounced check fees ranging from $10 to $25. But write a bad check to your mortgage company, and they may hit you with a “late payment fee” of $50 or more.

Worse yet, because many people write checks in bunches--paying all their bills on the first of the month, for example--there’s a fairly good chance that whatever error caused one bounced check could cause several more. If you thought there was $100 more in your account than there actually was, you might write four $20 checks that all bounce, triggering more than $100 in bank and retailer fees.

The good news is you don’t have to go broke just because your checking balance is tight. Banks offer a low-cost solution for the error-prone, called overdraft protection.

Overdraft protection is nothing more than a prearrangement with your bank that says if you err by spending more than what’s in your checking account, they won’t bounce the check. Instead, they’ll pay it by doing one of three things: Deducting the amount from another one of your accounts at the bank--a savings account, for instance; transferring money into your checking account from your credit card as a cash advance, or transferring money out of a personal line of credit into your checking account.

None of these services are free, of course. But each is significantly less expensive than bank and retailer charges that hit when you bounce a check.

Some banks charge $20 or more for bounced checks, but even if they charge less it can be well worth paying $20 or $30 a year for access to a line credit. Covering a few bounced checks will easily outweigh the annual fee and interest charges you’d pay to avoid them.

Most large banks give you several options to handle insufficient funds. For example, San Francisco-based Wells Fargo Bank handles overdraft protection in one of two ways: It will charge the customer’s credit card account or it will deduct money from a savings account.

If the money is taken out of savings, there’s no interest charge--just a $3 per transaction transfer fee. In other words, the customer with four bad checks would pay $12.

If the money was taken from a Wells credit card account, the customer would be charged 2% of the check amount--but there’s a $3 minimum and $7.50 maximum, says Kathleen Shilkret, a Wells Fargo spokeswoman. The customer would also pay interest at the credit card rate of 19.8% per annum.

What happens if you simply bounce a check at Wells? If you bounce checks only once in a while--less than three in a 12-month period--the bank charges $10 per check. But bounce checks frequently and it gets ugly. Those who bounce four checks within 12 months are charged $15 per check; bounce 10 checks in a year and the fee is $25 each.

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Bounce, Borrow or Transfer?

Here’s a sampling of five local financial institutions’ bounced-check fees compared to charges for avoiding bounced checks by linking your checking account with a credit card, line of credit or savings.

INSTITUTION: Bank of America

BOUNCED CHECK FEE: $10*

OVERDRAFT ALTERNATIVES: Credit card link: 2% of amount, $2 minimum; Savings link: $3 per transfer

INSTITUTION: First Interstate

BOUNCED CHECK FEE: $15

OVERDRAFT ALTERNATIVES: Line of credit has $10 annual fee plus interest when used

INSTITUTION: Home Savings

BOUNCED CHECK FEE: $10

OVERDRAFT ALTERNATIVES: Line of credit fee is $1 per day or $3 per month maximum, plus interest

INSTITUTION: Los Angeles Schools Fed. Credit Union

BOUNCED CHECK FEE: $12

OVERDRAFT ALTERNATIVES: Savings link, no charge