How to avoid $30 returned-check fees BIG FEES FOR BOUNCED CHECKS THAT COST BANKS $1.32
By Beth Kobliner

(MONEY Magazine) – If you've bounced a check lately, you probably hit the roof when the bank socked you with the fee. The average charge for a returned check -- known in banking circles as an NSF, or nonsufficient funds, check -- soared to $18.35 this year, up 21% from $15.11 in 1990, according to a recent survey of 300 banks by two Washington, D.C.-based consumer organizations, the Consumer Federation of America and the U.S. Public Interest Research Group (PIRG). Only 17 states set caps on what banks can collect for a check indiscretion, with limits ranging from $10 to $20. As a result, some bankers in the remaining 33 states are hosing customers with fees upwards of $30. Bankers, predictably, insist that these levies are justified. "It's against the law to bounce a check," says John Hall, a spokesman for the American Bankers Association. "The charges are meant to be a deterrent." But consumer groups insist that many institutions are simply gouging consumers. Figures from the Bank Administration Institute, a research group in Chicago, show that banks' median cost for processing a returned check is just $1.32. Fumes Ed Mierzwinski, a consumer lobbyist with the U.S. PIRG: "That means some banks are charging more than 20 times their cost." In their quest for fee income, banks are also finding additional ways to penalize you for rubber checks. Furthermore, other businesses, such as local retailers, are getting into the act and levying fees for bad checks. If the same check is returned twice by the bank -- not uncommon since some merchants automatically redeposit a bounced check -- you could actually wind up paying as much as $80 for a single slipup: two $30 charges from the bank and as much as $20 from the merchant. And if several checks bounce because of a deposit that failed to clear in time, the total could quickly snowball into hundreds of dollars. Here's a rundown of some of the more irksome -- and costly -- penalties you could face: Fees for depositing another person's bad check. As if it's not irritating enough to get slapped with a charge for your own mistake, more and more banks are now penalizing you for someone else's goof. According to the Federal Reserve, 56% of banks, up from 47% three years ago, now charge you if you deposit a check that later bounces. The average charge is about $6, although some banks may soak you $10 to $20. Charges when the bank purposely bounces several of your checks. Let's say you've written four checks for $25, $35, $50 and $200 that reach the bank in that order on the same day, but your $200 account balance won't cover them all. It once would have been customary for the bank to clear those checks in the order in which they came in. Only the $200 check would have bounced. But practices have changed. "Consultants are now encouraging bankers to change the order in which they clear checks," says Janice Shields, an associate professor at Bloomsburg University in Pennsylvania. "So if you have one big check, they'll clear that one first, deplete the account and then charge you bounced- check fees for all the others." Fees that follow the bouncing check. Most states don't regulate how much a store owner or business can charge you for a bum check. Retailers generally hit you for $10 to $20. If you write a check to pay your credit-card bill and it bounces, your credit-card issuer will probably tag you with a $10 to $15 fee. To avoid these onerous penalties, keep an accurate running balance of the cash in your account. Be sure to enter in your checkbook the amount for every check you write, each ATM withdrawal and all account fees. Also, make sure you allow enough time for any checks you deposit to clear. (Generally, deposits of less than $5,000 must be made available within five business days; banks can hold funds in excess of that amount for up to 11 business days.) You should also look into adding a line of credit for overdraft protection to your checking account. It usually costs you nothing to create a reserve of up to $15,000. Banks typically charge you 18% interest on the money they lend you to cover overdrawn accounts. Still, the $1.50 or so you would pay to cover a $100 check for a month beats paying a $10 to $30 bounced-check fee. Finally, don't hesitate to demand that the bank drop the fee if you think you've been unfairly charged -- or politely ask them to reverse the charge even if you are at fault. "If you rarely bounce checks or you have several accounts like a loan and a CD," says ABA's Hall, "the bank will probably waive the fee for you."

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Editor's note: Beginning this month, Banking Scorecard has been expanded, redesigned and renamed Your Money Monitor. In addition to banking products, this section will now cover savings vehicles such as Treasury securities, short-term bond funds -- and even the occasional high-yield stock that may be suitable for that portion of your savings for which you can tolerate somewhat higher risk.

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