According to the Federal Reserve System, Americans write about 40 billion checks a year. In addition, electronic payments from checking accounts - using a debit card (to deduct payments directly from your bank account), online banking (to pay bills, move money or conduct other transactions using your computer) or other automated services - already outnumber paper checks as a payment of choice.
More changes are in store with the Check Clearing for the 21st Century Act ("Check 21," which was effective in late 2004. This law allows financial institutions to process "substitute checks," high-quality paper reproductions of both sides of original checks. Each substitute check will be created from an electronic image of an original paper check. Over time, Check 21 will make check processing faster, and that has real implications for check writers and depositors.
The Federal Deposit Insurance Corporation ("FDIC") offers the following tips and information about what to look for... and what to look out for... when choosing and using a checking account.
Avoid Bouncing Checks
A check deposited in a bank generally travels by airplane and truck until it reaches the paying bank, typically about one or two days later. As a result of Check 21, more checks will be processed electronically... and faster. That means you need to have enough money in your account when you write a check or run the risk of having checks bounce, with fees typically in the range of $15 to $30 per check.
What can you do to avoid bounced checks? Keep your checkbook up-to-date by:
- Deducting ATM withdrawals, bank fees and debit card purchases
- Comparing your checkbook with your monthly statement
- Not relying on your ATM receipt for balance information, because it may not reflect outstanding checks or debit card transactions
- Keeping up with each check, ATM withdrawal or debit card transaction of any other person on the account
- Carefully considering the pros and cons of signing up for an overdraft line of credit, which means the bank will automatically cover checks you write (up to an agreed amount) even if you don't have enough funds in the account
Faster check processing as a result of Check 21 may also mean that you may have less time to place a "stop payment" on a check you've written.
Substitute Checks
For many years, banking institutions have kept original checks for a short period and sent statements showing images of cancelled checks. Some banks have only listed check transactions on monthly statements and not routinely sent cancelled checks or images. Check 21 is expected to reduce the instances in which original checks are returned with statements. The bank where the check is deposited will have two choices: to return the original check to your bank, as was done in the past, or to create an electronic image of the check, produce a substitute check and send it to your bank. This second option means your original cancelled check is no longer available to you.
What if you must prove a disputed payment and your bank has given you a substitute cancelled check, not your original cancelled check? As long as the substitute check meets Check 21's standards, it would legally serve as proof of payment. And what if a bank's substitute check falls short of those standards? Check 21 provides warranties and remedies to protect parties to the transaction.
Protect Against Check Fraud
Bank security procedures can't stop all frauds, which may involve printing or altering checks or obtaining account numbers used to arrange for "payments" from accounts. You can help by promptly reviewing your bank statement each month and immediately reporting any unauthorized transactions. Or, better yet, monitor your account more regularly online or through telephone banking programs at your bank. Timely notification of a problem can limit your potential liability, stop a fraud or assist in an investigation.
Also protect your account information. For example:
- Only give your checking account number, including the routing numbers at the bottom of your check, to businesses you know are reputable
- Never provide checking or credit card information, Social Security numbers or other personal information in response to an unsolicited call or e-mail, which could be fraudulent.
Take safety precautions with your checks, too. Don't carry more checks than you expect to use, keep extra checks in a secure place, and contact your bank immediately if any of your checks are lost or stolen.
And consider direct deposit of your paycheck and other checks you may receive, such as Social Security payments, as a way to prevent them from being lost, misplaced or stolen out of mailboxes.