Avoiding bounced payments

What’s more embarrassing – having your card declined in a posh shop or having insufficient funds in your account so that a payment bounces? There’s probably not a lot in it to be honest – it amounts to the same thing – the fact that you don’t have enough cash in the bank to fulfil your financial obligations (or whims). But apart from your ego, what else can a bounced payment affect?

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Why does a payment bounce?

Quite simply, because you don’t have enough money in your account to cover the payment. Typical bounced payments include direct debits or standing orders (called ‘pre-arranged payments’) which come out automatically usually in the early hours of the morning and even if you try to be meticulous about budgeting and planning, it can be easy to get caught out.

Let’s say you get paid on the 28th of every month, and you rely on that to pay off pre-arranged payments like your rent or a credit card bill which comes out around the same time. If your work makes a payment slightly later in the day, your wages might not clear in time for your pre-arranged payments to be made and that can result in a returned direct debit, aka a bounced payment.

So what happens once it’s bounced?

If a payment bounces then your bank might charge you a ‘returned item’ fee. Missed or late payments also end up on your credit report and can stay there for at least six years. It might sound a bit over the top but if you’ve got a history of bounced payments then you’re seen as a risky investment and lenders may be reluctant to lend you money. Ultimately, this means you could find it difficult to get credit, a loan or a mortgage in the future.

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Wouldn’t it be good if there was a ‘retry’ process?

Well, you’re in luck, because as of September 2016, the majority of banks implemented a ‘same-day retry service’. What this means is that you’ve got a few more hours for credits to clear or for you to put enough money into your account for your pre-arranged payments to go through.

The second attempt at processing your payments is around 2pm but this isn’t set in stone and varies from bank to bank so if you like sailing close to the wind then it’s worth finding out exactly what time your bank’s retry time is.

What the retry process means is potentially an end to hefty fees for bounced payments. Of course if you can’t top up your funds and you aren’t able to fulfil the payment at the retry time then you’ll still be hit with a returned item charge.

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What if my cheque bounces?

At the moment the retry system only applies to pre-arranged payments like direct debits and standing orders, so cheques aren’t automatically part of this process. However, some banks will include cheques as part of the process – so it’s up to you to find out if your bank’s one of them.

How can I prevent bounced payments?

Check the dates you have payments coming in and going out of your account, if the dates are cutting it a bit fine then rearrange your direct debits and standing orders to come out on a later date.

If you need to top up your account then the fastest way to get a cash injection is by phone or online banking – unless it’s for a big lump sum in which case, best to check with your bank as there can be limits on how much they will process online.

And of course, another top tip is to just ensure you don’t go out on a spending splurge the day before your payments are due to come out.

Current accounts just for you

Finding a current account isn’t like buying a pint of milk – accounts from different banks will offer different features so it’s up to you to find one that has all the things you want – whether that’s just a standard account, or one with little extras like insurance packages or car breakdown cover. There’s no such thing as a one size fits all so do a little homework and comparethemarket.com

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