What Are Non-Sufficient Funds (NSF)?

The term non-sufficient funds (NSF), or insufficient funds, refers to the status of a checking account that does not have enough money to cover transactions. NSF also describes the fee charged when a check is presented but cannot be covered by the balance in the account. You may see a “non-sufficient funds” or “insufficient funds” notice on a bank statement or at an ATM terminal (or on a receipt) when attempting to withdraw more money than your account holds.

Colloquially, NSF checks are known as “bounced” or “bad” checks. If a bank receives a check written on an account with insufficient funds, the bank can refuse payment and charge the account holder an NSF fee. Additionally, a penalty or fee may be charged by the merchant for the returned check. By law, certified checks and cashiers checks must be made available to you within one business day of deposit.

Key Takeaways

  • The term “non-sufficient funds” (NSF), or “insufficient funds,” refers to the status of a checking account that does not have enough money to cover transactions.
  • The acronym NSF also describes the fee charged when a check is presented but cannot be covered by the balance in the account.
  • The average NSF fee in the U.S. ranges between $27 and $35.
  • Writing an NSF check may result in criminal charges, especially for large amounts.
  • Consumers can opt for overdraft protection through their banks, which affects credit and debit card transactions in particular.

How NSF Fees Work

Banks often charge NSF fees when a presented payment is returned due to insufficient funds. A similar fee may be assessed when honoring payments from accounts with insufficient balances. The latter scenario describes an account overdraft (OD), which is often confused or used interchangeably with non-sufficient funds.

The fees many banks charge for NSF checks are a point of contention between consumers and banks. Consumer advocates allege that as fees are usually a fixed amount, customers are, in effect, paying extraordinarily high interest rates for relatively small deficits in their accounts.

Banks provide account holders with several options to avoid the penalties associated with an insufficient funds transaction. You can choose to opt out of certain overdraft policies that allow the bank to cover charges and add an NSF fee. You usually also have the option to link at least one backup account, such as a savings account or credit card. The funds required for the transaction are then taken from the linked account, which can serve as another source of funds.

Non-sufficient funds and overdrafts are two different things, though both can trigger fees and penalties.

Overdraft vs. NSF Fees

Banks charge NSF fees when they return presented payments (e.g., checks) and overdraft fees when they accept checks that overdraw checking accounts. Imagine, for example, that you have $100 in your checking account and initiate an automated clearing house (ACH) or electronic check payment for a purchase in the amount of $120. If your bank refuses to pay the check, you incur an NSF fee and face any penalties or charges the seller assesses for returned checks. If the bank accepts the check and pays the seller, your checking account balance falls to $-20 and incurs an overdraft fee. Either way, the fee assessed by the bank reduces the available account balance.

Special Considerations

You can avoid NSF fees by properly budgeting or keeping contingency amounts in your checking accounts, so that you do not intentionally or inadvertently overdraw. In addition, you should carefully monitor your use of checks, debit cards, and automated charges, which are common causes of overdrafts.

Many banks also offer overdraft lines of credit. This is a special product that you can apply for to cover any issues with insufficient funds. An overdraft line of credit requires you to complete a credit application, which considers your credit score and credit profile in determining approval.

If you are granted an overdraft line of credit, you typically receive a revolving credit line of approximately $1,000. This account can be linked to cover any transactions made with insufficient funds in the primary account. It can also be used for cash advances to your checking account.

In 2010 the U.S. government created a set of sweeping bank-reform laws to address overdraft and NSF fees among other consumer banking issues. Under the laws, consumers can opt for overdraft protection through their banks. Opting into overdraft protection affects credit and debit card transactions in particular. Like any banking service, it can pay to read the fine print and study the pros and cons.

Examples of NSF and Overdraft Fees

Say you have $20 in your checking account and attempt to make a $40 purchase with a debit or check card. If you have not opted into your bank’s overdraft plan, the transaction will be declined by the retailer; if you have opted in, the transaction may be accepted, and the bank may assess an OD fee. However, if you write a check for $40, the bank may honor it and assess an OD fee—or reject it and assess an NSF fee, regardless of whether you have opted into its overdraft program.