A bounced cheque, also known as a rubber cheque or a returned cheque, occurs when a written cheque cannot be processed by the depositor’s bank due to insufficient funds in the issuer's account.
Regardless of whether you’re the issuer or the depositor of the cheque, encountering a bounced cheque can be a disconcerting experience, prompting questions about how to navigate the aftermath.
In this article, we’ll delve into the intricacies of bounced cheques, shedding light on the reasons behind their occurrence, any associated fees, and the necessary steps to take if you find yourself on either side of this financial hiccup.
Key Takeaways
- A bounced cheque, resulting from insufficient funds in the issuer’s account, disrupts transactions for both the payer and payee.
- The typical non-sufficient funds (NSF) fee charged by Canadian banks is around $45.
- To prevent bounced cheques, maintain an account buffer, explore overdraft protection, and use online banking tools to monitor your balance.
What happens if a cheque bounces?
When a cheque bounces, it signifies that the issuer's bank cannot honour the payment due to insufficient funds in the account. The consequences of this will be different for the payer and the payee.
Payer
- A non-sufficient funds (NSF) fee will likely be imposed by the payer’s bank unless overdraft services are available (overdraft fees apply).
- Payer’s standing with their bank may be jeopardized, especially if bounced cheques are a common occurrence.
- If the cheque was intended to pay a credit card balance or bill, the lack of payment may negatively affect the payer’s credit score.
Payee
- Legally, banks are obligated to immediately release the first $100 of funds deposited via cheque. If the payee has already used this money and the cheque bounces, the payee must pay this money back to the bank.
- After a cheque bounces, it is the payee’s responsibility to arrange proper payment from the payer.
Bounced cheque fees
NSF fees are charges imposed by financial institutions when an account lacks adequate funds to cover a transaction. These fees serve as penalties for attempting payments with insufficient or unavailable funds, highlighting the importance of maintaining a proper balance in your account.
Here are the NSF fees for Canada’s big 5 banks:
| Bank | Fees |
|---|---|
| BMO | $48 |
| Scotiabank | $48 |
| RBC | $45 |
| CIBC | $45 |
| TD | $48 |
How to prevent a bounced cheque
Bounced cheques are a hassle for both the payer and the payee. To avoid having a cheque that you wrote bounce (and the fees associated with it!), consider the following tips:
- Always keep a buffer in your account to cover unexpected expenses and fluctuations in your balance. If this is difficult, make sure that you time your payments carefully, being aware of the timing of payment obligations and pre-authorized debits before writing/dating your cheque.
- Explore overdraft protection options provided by your bank, which can prevent bounced cheques by allowing transactions to proceed even if your account temporarily lacks funds. Remember, overdraft fees are significantly lower than NSF fees!
- Stay in close contact with your payees. If you foresee any challenges in covering a cheque, communicate with the payee in advance to discuss alternative arrangements and prevent potential fees.
- Leverage online banking tools to keep track of your account and adhere to a budget to avoid any insufficient funds.
Understanding how bounced cheques work
By adopting proactive measures, you can significantly reduce the likelihood of bounced cheques and the hefty NSF fees charged by Canadian banks!
Have you ever had a cheque bounce before? Tell us about your experience in the comments below.
FAQ
What is a bounced cheque?
A bounced or returned cheque occurs when the issuer's account lacks sufficient funds to cover the cheque amount, preventing the bank from processing the payment.
How much is the penalty for a bounced cheque?
The penalty for a bounced cheque varies by bank, but is typically around the $40 - $50 mark for Canadian financial institutions (only the payer pays this fee, not the payee).
How long does it take for a cheque to bounce?
The timeframe for a cheque to bounce depends on factors like processing times and available funds, but you’ll typically know within a few business days.
Leave a comment
Comments