not sufficient funds NSF check definition and meaning

From the perspective of running a business, it makes sense to have an overdraft arrangement, so that presented checks will be honored by the bank. Unless you’ve opted into overdraft protection, the bank may decline the transaction and charge you a fee. Here’s everything you need to know about non-sufficient funds fees (also known as NSF fees) and how to avoid them. If you deposit a check that is later returned, your bank will likely charge you an NSF fee.

  • The average NSF fee was around $34 in 2022, according to the Consumer Financial Protection Bureau (CFPB).
  • As you can see, having non-sufficient funds can lead to NSF fees and also create difficult situations for you with payees.
  • You’ll also want to ask for payment in the form of a money order or cashier’s check.
  • Yes, NSF fees are legal—your bank or credit union can charge you a fee for bounced checks.
  • A check verification service can be costly, so be sure to check around for one that’s in your business budget.

Kevin Payne is a personal finance and travel writer who covers credit cards, banking, and other personal finance topics. In addition to Forbes, his work has been featured by Bankrate, Fox Business, Slick Deals, and more. He is the budgeting and family travel enthusiast behind Family Money Adventure. When this occurs, the bank or credit union may decline to pay or return the item unpaid and then charge an NSF fee. On top of the charge from the financial institution, you may get hit with a charge from the merchant as well. Banks charge NSF fees for the cost and inconvenience of having to return declined checks.

Plus, the agency points out, the customer doesn’t benefit from the practice at all. NSF checks directly impact your accounts receivable balance as well as your cash balance, so you’ll need to be sure that you record both the NSF check and the check fee properly. This is an easy process if you’re using accounting software but will require multiple entries if you’re recording accounting transactions manually. You may also hear the terms payment rejection, bounced check, overdrawn account, or non-sufficient funds (NSF); these all refer to not having enough money in an account to cover a payment.


Late payments that are made 30 days past the due date may be reported to credit bureaus, which could hurt your credit. Paying bank fees can be a drain on your finances, but it’s often avoidable with smart money management. Below is an in-depth look at non-sufficient funds and what you can do to avoid paying costly fees. When a check is written and deposited by the payee, their optimal capital allocation to efficient frontier portfolios financial institution must make the funds available to them within two business days after they make the deposit. If funds are not available from the payer’s bank account, it is deemed as insufficient and an NSF fee is assessed. Additionally an NSF check can also be referred to as a non-sufficient funds check, bounced check, returned check or an insufficient funds check.

However, if you’ve opted for overdraft protection through your bank, and the bank allows the transaction to go through, you may get charged an overdraft penalty. Customers will see a “non-sufficient funds” or “insufficient funds” notice on a bank statement when attempting to withdraw more money than their account holds. Life is unpredictable, and unexpected expenses can come up at any time. Whether it’s a sudden car repair, a medical emergency or a job loss, having an emergency fund can provide peace of mind and financial stability during difficult times. Mobile alert settings and features for your debit card will vary from bank to bank.

  • Likewise, you can have many credit accounts, and NSF fees will have no impact on any of them.
  • When you do contact your customer, make payment arrangements immediately, giving them a date when reimbursement is due.
  • Your bank may charge you a fee when a check you’ve written is unpaid due to a lack of necessary funds to cover the transaction.
  • If you’re bouncing checks, take the following steps to break the habit and curb the consequences.

To avoid the temptation to dip into your emergency fund for non-emergency expenses, keep your emergency fund in a separate account from your other savings. This will also make it easier to track your progress toward your savings goal. The amount of money you should have in your emergency fund can vary depending on your personal and financial goals. As a rule of thumb, financial experts recommend having enough savings to cover three to six months’ worth of living expenses. Determine the right amount for your emergency fund by calculating your monthly expenses. This includes rent or mortgage payments, utilities, groceries, transportation, insurance premiums and any other recurring bills.

Do NSF Fees Affect Your Credit?

The receiving bank then submits the check to your bank to collect payment. You may have to pay significant fees, you could lose the ability to write checks in the future, you risk legal issues, and your credit can suffer. If your bank charges excessive fees when you overdraw your account, find a bank that doesn’t charge NSF fees or lets you use a linked bank account to fund those transactions.


We’ll explain exactly what an NSF check is and what you should do if you do receive one from a customer. We’ll also give you some suggestions on how to protect your business against NSF checks. If the bank perceives you to be a good customer who simply made a mistake, it may be more likely to refund you.

Are NSF fees legal?

If this system connects the check you’ve just presented for payment to a history of unpaid checks, the merchant will decline your check and ask you for a different form of payment. Many times, bad checks are written inadvertently by people who simply are unaware that their bank balances are too low. To avoid bouncing checks, some consumers use overdraft protection or attach a line of credit to their checking accounts. An insufficient funds fee is charged by the bank as a penalty when a payment presented by check is refused due to insufficient funds. Account holders can avoid such fees by linking another account, such as a credit card or a savings account, as a backup source of funds.

How To Calculate an Emergency Fund

The local agencies will follow up with check writers to collect the funds, and check writers can avoid criminal charges by making the payments in exchange. Typically, all the charges can be dropped if the bad check writers can make up their payments within six days. Transactions that can lead to such a status include check payments, cash withdrawals, automatic electric payments, etc. For example, A writes a check to pay $5,000 to B, but there is only $4,500 in A’s checking account.

If you need to close your account in favor of a better bank, do so. Often, account holders can set alerts for specific balance levels. Other alerts will trigger automatically, including fraud and suspicious purchase alerts.

One of the more common payment methods used by customers is to write a check. With overdraft protection, instead of rejecting transactions, your bank will pay them as if you had enough money—but they’ll charge you around $35 each time. There’s no guarantee that your bank will waive your NSF fee, but you can contact your bank’s customer service department and ask if they’d be willing to reverse it. Other ways to avoid an NSF fee or overdraft fee would be to set up low account balance alerts or to look for other banks that offer more flexible overdraft policies.

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