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Five ways to avoid a bouncing check

Do you really know how much cash is in your checking account?

If you're not sure, the next check you write could take on a costly rubbery feel.

Nonsufficient funds or NSF fees have risen steadily over the years. On average, it costs more than $25 to bounce a check, according to Bankrate.com's Checking Study. But there are ways to prevent this embarrassing and costly snafu. Some of them include:

  • Balancing your checkbook
  • Recording all ATM/debit transactions
  • Staying on top of automatic deductions
  • Using overdraft protection
  • Reporting a lost or stolen checkbook immediately

Balance that checkbook
It sounds elementary, but balancing your checkbook can be the best preventive measure. Begin by writing down every withdrawal and deposit. If you withdraw $20 from an ATM, write it down. If you deposit a $100 check from Uncle Sam, write it down. A well-kept checkbook makes it easier to spot mistakes when you compare it to your monthly bank statement. Unfortunately, the popularity of ATMs, automatic deductions and debit cards -- conveniences that immediately deduct money from your account -- make balancing your checkbook more challenging, says Joel Houston, an associate professor of finance at the University of Florida in Gainesville.

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ATM/debit cards
Most institutions charge noncustomers a fee for using their ATMs. The fee is usually $1.50, but some charge $2 or more.

Debit cards, on the other hand, do not carry surcharges. They work just like a check -- money is siphoned from your account when the card is used. Keep in mind that debit cards offer less leverage than a credit card when returning a purchased item. So check the card's return policy.

ATM and debit transactions need to be recorded immediately to keep from losing track of your balance.

Automatic deduction
These nifty payment plans can save you time and stamps because they pre-authorize monthly debits of bill payments for such regular expenses as gym memberships, student loans and car payments. You are letting the bank do the paperwork to pay your bills. However, automatic deductions are not without their problems, says Edward Mrkvicka Jr., author of Your Bank is Ripping You Off.

For example, a monthly debit from your account may continue for a gym membership you canceled three months ago. So be sure to stay on top of all deductions, note them in your checkbook and contact the bank if there are any discrepancies.

Overdraft protection
You can forever avoid the rubber check blues by signing up for overdraft protection. When you write a check for more than the balance in your account, money can be automatically withdrawn from your savings or money market account to cover the amount.

Some financial institutions charge a fee to transfer funds from one account to another. Yet, Mrkvicka says, there are ways to avoid the fees of this coverage.

"You can get the same service for nothing if you ask for a red flag. That means if you're account is overdrawn, someone will pick up the phone to tell you that you have until the end of the business day to make a deposit."

Lost checkbook
Failing to notify the bank immediately that your checkbook or debit card was lost or stolen can result in losing all of your money.

Issue a stop payment on checks numbered after the last check you wrote. Some financial institutions limit your liability at $50 for a lost debit card. That limit, though, could increase the longer you wait to report the loss.

The best preventive measure to take is keeping fastidious records of all your financial transactions. Think about it, you may never have to venture into rubber-check city again.

-- Updated: June 10, 2003


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See Also
Find the best checking account for you
Bouncing back from a checking ban
Banks profiting from bounce-protection programs


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