By Laura McMullen
The idea of writing a check and waiting for the transaction to clear may seem as slow-moving and dated as a game of "Pong." With debit cards, credit cards and payment apps proliferating, check payments have declined by over 50% from 2003 to 2012, according to the Federal Reserve.
But knowing the basics of check-writing and processing are still important. In fact, from June 2015 to May 2016, more than a million Google searches were logged for "how to write a check." Get out your ballpoint pen and let's get started.
When to use checks
Writing a check is "one of those things you don't need to know how to do until, suddenly you do," says NerdWallet banking expert Devan Goldstein. Your landlord may want rent via check, for example, or it may be the best way to donate to charity, pay a baby sitter or the plumber. Vendors must pay transaction fees when processing credit and debit cards, so some small businesses avoid that cost by accepting only checks and cash.
How checks work
Checks are linked to your checking account with a bank, brokerage or credit union. You're promising the recipient that the amount will be available in your account when the check is deposited into their account. That could be a few days after writing the check or as many as six months later, after which banks aren't obligated to redeem the check.
Once the recipient deposits your check, it typically takes one or two days for it to clear, meaning the funds become unavailable to you and are credited to the recipient. If the check is for more than $5,000 and/or to an out-of-state payee, it may take about a week for the full amount to clear. You can even cancel a check under some circumstances.
How to write a check
After you order checks through your financial institution or elsewhere, learn how to write a check. It's easy to make costly mistakes. Send your January 2017 rent check with "2016" written in the area for the date, for example, and the bank may deny payment because the check is stale. Or if you scribble the amount for "one-thousand and forty," the bank could interpret it as $1,000.40, instead of "one-thousand forty dollars and 00/100" ($1,040.00). Suddenly, you're $40 shy on rent. Take your time writing a check and proofread it.
Keep track of your account
When checks were more popular, people would track their deposits and withdrawals by balancing their checkbooks. In doing so, they would know how much money they have promised out in checks compared with how much they have available in their accounts. For example, say you log a $1,000 balance on Monday and a $200 check for groceries on Tuesday. You would know by glancing at your check ledger that writing a $900 rent check on Wednesday won't work unless you deposit $100 more.
If you write only a handful of checks a year, balancing your checkbook may be unnecessary. "But you still need to stay out of overdraft trouble," Goldstein says. So keep track of your balance online. "Track uncashed checks, upcoming automatic bill payments and transfers you've scheduled in online banking."
What happens if you bounce a check
Prepare for fees if you don't have the funds you had promised. (You write that $900 rent check but have only $800 available when your landlord redeems it, for example.) You may pay one of the fees below, depending on the financial institution and checking account:
Overdraft fee: Your bank may allow the check to clear and your checking account to dip into the negative. (In the rent example above, your landlord would receive all $900, but your checking account would fall to -$100.) Most banks would charge a fee of $25 to nearly $40, which can be charged for each overdraft.
Nonsufficient funds fee: In this case, your bank rejects the transaction. It charges an NSF fee, which, like an overdraft fee, typically ranges from $25 to about $40. Your landlord doesn't get the $900 and is likely charged a fee by his own bank for depositing a bad check. The landlord then will probably demand that fee from you.
Overdraft protection transfer fee: Some banks offer overdraft protection, which allows you to link your checking account to a savings account, credit card or, in some cases, a line of credit reserved in advance for this purpose. The bank then taps that linked account if you overdraw from your checking account. Your bank will transfer funds from the linked account to cover the check and typically charge about $10 or $12.
If you fail to pay NSF fees or make a habit of writing bad checks, the bank may close your account and you could face criminal charges. You may also find it difficult to open another account anywhere else if you're blacklisted by ChexSystems.
"Now that you know how to write a check, it's time for the hard work: budgeting," Goldstein says.