Everyone who has a checking account should make it their top priority to avoid overdrafts and checks that don't clear. The amount of money you can be charged by both the bank and the business that took the bad check can be huge. If you have too many of these overdrafts at once, penalties and fees can put you several hundred dollars (or more) behind on your bills. You might even have to go to court to make things right, and your bank might close your account. Overdrafts are bad in every way.
So, how do you avoid checks that don't clear or overdrafts?
Good management is the answer to that. If you know how much money is in your account, you are less likely to make a mistake that can lead to an overdraft.
The first thing you can do to avoid overdrafts is to use your chequebook register every time you write a check or send money from your checking account electronically. The fastest way to keep track of what you owe and how much money is in your checking account is to use the register. Make sure to add any service fees that are automatically taken out of your account. This is an important part of keeping the register up to date. This could include things like your account's monthly fee, if there is one.
Modern technology has given us many ways to send and receive money electronically, which can cause problems for people who don't keep good records. Debit cards, ATM withdrawals and deposits, online money transfers and deposits, and online purchases are all ways that we use technology to change the amount in our checking account.
Many of these ways allow us to use our checking accounts very quickly. In some cases, transactions can happen almost instantly, so it's important to make sure we have the money in our account when we do them. Electronic transactions where there isn't enough money in your account can result in non-sufficient funds penalties, just like when you write a check. These fees can add up very quickly.
You might want to ask your bank if they have any ways to protect their customers from overdrafts. These give you some wiggle room in case you write a check but don't have enough money to pay for it. If you write a check that is less than what you have in your account, you usually have to pay overdraft fees. However, these fees are usually less than what you would have to pay if you didn't have overdraft protection.
You can link your savings account to your checking account at some banks. If you overdraw your checking account, the bank will move money from your savings account to your checking account to cover the check. You should check with your bank to see if there are any fees for this service, as it is not always free.
You could also link your credit card to your checking account. Some banks will do this, but not all of them. With this type of linkage, the bank will cover the amount of the overdraft, but the credit card will be used to get cash. Usually, you have to pay the cash advance fees, but again, honouring the check can keep you out of trouble.
The best advice is to always keep a close eye on your checking account balance and make sure you account for all charges and fees that will affect your balance.
