Cashing Checks with Insufficient Funds: What Banks Can & Can't Do

Generally, you can only cash at check if the account the funds are drawn from contains sufficient funds to cover the item. However, in some situations banks do cash checks despite negative account balances. Additionally, even if there are sufficient funds in the account as the time you cash the check, the transaction could still result in a non-sufficient-funds fee.

Deposit Accounts

When you establish a deposit relationship with a bank, you loan your money to the bank but if you overdraw your account you become a debtor as the bank lends you money to cover the overdraft. Typically, banks do not allow customers to overdraw their accounts but bank managers have the authority to make exceptions for high-value customers who have substantial relationships for the bank. If you have a regular direct deposit coming into your account tomorrow, a bank manager may allow you to overdraw your account by cashing a check today in the knowledge that the direct deposit will offset the withdrawal tomorrow.

Overdraft Protection

In order to minimize fees caused by overdraft situations, many banks enable account holders to establish overdraft protection facilities. Overdraft protection may come in the form of a linked savings account or a line of credit. If you have overdraft protection in place, someone can cash a check against your checking account despite a lack of available funds if there are sufficient funds to cover the item in the linked overdraft protection account.

Not-On-Us Checks

You can draw a check drawn from another bank against your own accountm but only if you have a positive balance in your account. Your bank has no way of knowing whether the check being presented from the other bank will clear when sent for payment but your bank can debit your account for the proceeds if the check is dishonored. However, if you already have a negative balance you cannot cash such a check because then your bank would have no recourse if the check bounced.

Other Considerations

Some banks are not "online," which means that your account balance only gets updated every night after the bank closes. If you had a positive balance at the start of the day, you could cash a check for the entire amount in your account. However, you could also make a withdrawal at an automated-teller-machine for the same sum and your bank would not know until all transactions are processed that evening. When this occurs you account would go into the negative and you would incur and overdraft fee for either the ATM withdrawal or the cashed check.