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Banking Checking Accounts

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Guide to Checking Accounts

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Explore The Guide

• Overview

• Types of Checking Accounts

  • Overview
  • 6 Different Checking Accounts
  • Second Chance Account
  • Joint Checking Account

• Checking Account Basics

  • Overview
  • Account Balance
  • Non-Sufficient Funds
  • Routing Transit Number
  • Overdraft Protection
  • Overdraft Protection: Pros and Cons
  • Overdraft Consequences

• Opening a Checking Account

  • Overview
  • The Documents You Need
  • Pros and Cons of Checking Accounts
  • Checking Account Beneficiaries

• Paying With Checks

  • Overview
  • What is a Check?
  • Bounced Check
  • Do Checks Expire?
  • How to Write a Check

• Using a Debit Card

  • Overview
  • Debit Cards
  • Debit Cards With Rewards
  • Keeping Transactions Safe

• Best Checking Accounts

  • Overview
  • Best Checking Accounts for Teens
  • Best Rewards Checking Accounts
  • Best High-Interest Checking Accounts

• Business Checking Accounts

  • Overview
  • Zero Balance Account
  • Best for Small Businesses

Non-Sufficient Funds [NSF]

By

Will Kenton

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Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.

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Updated July 21, 2021

Reviewed by

Somer Anderson

Reviewed by Somer Anderson

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​Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.

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Fact checked by

Yarilet Perez

Fact checked by Yarilet Perez

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Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

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Table of Contents

Expand

Table of Contents

• What NSFs?

• How NSF Fees Work

• Overdraft vs. NSF Fees

• Examples of NSF and Overdraft Fees

• How to Avoid NSF Fees

• Criticism of NSF Fees

• NSF Fee FAQs

• The Bottom Line

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.

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.
• NSF fees are slightly different from overdraft fees, which apply when a bank accepts checks that overdraw checking accounts.
• Consumers can opt for overdraft protection through their banks to avoid NSF fees.

How Non-Sufficient Funds Fees Work

Banks often charge NSF fees when a presented check is returned due to a lack of funds to cover it. A similar fee may be assessed when honoring payments from accounts that have insufficient balances. The latter scenario describes an account overdraft [OD], which is often confused or used interchangeably with non-sufficient funds [see Overdraft vs. NSF Fees, below].

The fees many banks charge for NSF checks are a bone 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.

The average NSF fee in the U.S. ranges between $27 and $39. Many are around $30.

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.

By law, certified checks and cashier's checks must be made available to you within one business day of deposit.

Overdraft vs. NSF Fees

Non-sufficient funds and overdrafts are two different things, though both relate to a shortfall in funds, and can trigger 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 [OD] fee.

Either way, the fee assessed by the bank reduces the available account balance.

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-in to your banks 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 feeor reject it and assess an NSF fee, regardless of whether you have opted into its overdraft program.

How to Avoid NSF Fees

You can avoid NSF fees by properly budgeting: Never intentionally write a check or make a payment for more than your current balance, even if an infusion of fresh cash is imminent. It also helps to keep a cushioncontingency amounts in your checking accountsso that you do not inadvertently overdraw.

In addition, you should carefully monitor your account balance, looking out for debit card transactions and automated payments, which are easy to forget and hence, common causes of overdrafts.

Many banks now allow you to set up low-balance alerts: You get a text or email notification when the funds in your account drop below a figure you designate. That can help you keep track of how much money is currently available, and you can adjust your spending accordingly.

If you have more than one account at the banksay, a checking and a savings accountyou can link them so the money will automatically move from one to the other to cover withdrawals.

Many banks also offer overdraftlines 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 arevolving creditline 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 [in fact, banks are required to let them choose, instead of automatically enrolling them in the service]. Opting for 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.

Criticism of NSF Fees

Complaints about NSF fees are nothing new, as the 2010 bank reform legislation suggests. There have been numerous lawsuits over the years; the 2010s, in particular, have seen an increase in class action lawsuits challenging the manner in which financial institutions charge overdraft and non-sufficient funds fees.

These lawsuits don't try to deem NSFs illegal; rather, they allege breach of contract and unjust enrichment in the way they're applied. Different specific practices that have been cited include:

Reordering transactions: Financial institutions processing debits to consumer accounts in a way to maximize overdraft feesdeducting the largest first, rather thanin chronological order. Thisstrategy triggers negative balances and more frequent overdraft fees. In 2011, Bank of America settled a two-year-old class action for $410 million for reordering customer transactions and charging overdraft fees in this way. TD Bank paid over $62 million in a class action settlement for the same thing in 2010.

Authorize positive, settle negative: Financial institutions authorizing transactions at a time when customers had sufficient funds in their accounts to cover them, or promising to set aside fundsand then charging fees because the accounts had insufficient funds later, at the actual time of posting and settlement. In 2020, the Bank of Hawaii set up a settlement fund of $8 million to repay clients who had been charged in this way from 2010 to 2017; it also agreed to forgive overdraft fees that remained unpaid.

Single transaction, multiple fees: Financial institutions assess more than one NSF fee on a single item or transaction because the payment request is automatically re-submitted repeatedly [by the creditor, not necessarily with the bank customer's knowledge]. In 2020, the Navy Federal Credit Union settled such a case for $16 million, without conceding any wrongdoing or liability.

NSF Fee FAQs

Why Do Banks Charge an NSF Fee?

Ostensibly, banks charge NSF fees for the cost and inconvenience of having to return declined checks. In reality, banks often charge an NSF fee because it makes them money. "For many, overdraft/NSF fees have emerged as the No. 1 generator of fee income and is one of the banks most profitable sources of revenue," a Woodstock Institute report noted, quoting American Banker.

Are NSF Fees Legal?

Yes, NSF fees are legalon bounced checks, at least. Generally, they can't be charged on debit card transactions or ATM withdrawals.

Overall, the U.S. government doesn't regulate NSF fees or the size of fees; that's left up to the individual financial institution. The Truth in Lending Act does require banks to disclose their fees to customers when they open an account.

$11.68 billion

The collective amount of overdraft-related fees collected by major U.S. banks in 2019, according to a report by the Center for Responsible Lending.

Can an NSF Fee Be Waived?

Bank policies vary, but an NSF fee can often be waived after the factespecially if it's the first time, or the first time in a long time, that you've gotten one.

Call the bank's customer service line, and request a refund for a fee you've been slapped withthe sooner, the better. Indicate any mitigating circumstances, like a one-time delay in a regular direct deposit.

But you do have to askfew institutions have automatically suspended all fees as a blanket policy. Be polite but persistent: If one customer rep can't or won't help you, ask to speak to a supervisor. If you can, you might make the request in person at your local branch.

Do NSF Fees Affect Your Credit?

No, NSF fees don't affect your credit or your credit score directlybasically because the credit bureaus [Equifax, TransUnion, and Experian] don't know about them. Checks returned due to insufficient funds aren't individually reported to these agencies, either.

However, a bounced check can make your credit card or loan payment marked past due. That info does get reported to the credit bureaus. Rack up enough of those late payments, and it could ding your credit score. A string of bounced checks can also hurt your ability to open a new bank account or pay a merchant with a check in the future.

What Happens if I Don't Pay My NSF Fees?

You usually don't have an option as to paying NSF fees, as the bank automatically deducts them from your account. If you've accumulated enough fees to put your account in the red, the bank can close itusually after a stipulated amount of time. If your account is overdrawn, the bank can also seize any funds in other accounts you have with it to make good; or, try to pursue repayment by other means.

The Bottom Line

Non-sufficient funds and the fees they incur are irritating, but a fact of financial life. Though increasingly the focus of criticism and lawsuits, NSF fees remain legal. Clients can avoid them by monitoring their bank balances, maintaining a cushion of funds in accounts, and by signing up for overdraft protectioneven though that may incur fees of its own.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

1. HelpWithMyBank.gov. "Cashier's Check: The Bank Placed a Hold on a Cashier's Check that Later turned Out to be Fraudulent. Aren't Cashier's Checks Supposed to be Honored Immediately." Accessed April 7, 2021.

2. Consumer Financial Protection Bureau. "CFPB Study of Overdraft Programs: A White Paper of Initial Data Findings, June 2013," Pages 5, 19, and 27-30. Accessed April 7, 2021.

3. Cohen & Malad. "Class Action Bank Fee Lawsuits." Accessed April 7, 2021.

4. Bank of Hawaii. "Smith v. Bank of Hawaii Settlement." Accessed April 7, 2021.

5. Credit Union Times. "Navy Federal Settles Non-Sufficient Funds Fee Lawsuit for $16 Million." Accessed April 7, 2021.

6. Woodstock Institute. "Reinvestment Alert: Banking on Bounced Checks: Federal Proposal on Bounce Protection Still Exposes Consumers to Hidden Bank Fees," Page 5. Accessed April 7, 2021.

7. Center for Responsible Lending. "New Overdraft Report Urges Congress, Regulators, Banks to Halt Burdensome Bank Fees That Threaten Economic Recovery." Accessed Apr. 7, 2021.

Part Of

Guide to Checking Accounts Guide

• How Does a Checking Account Work?

  1 of 25

• The 6 Different Types of Checking Accounts

  2 of 25

• Your Second Chance at Checking

  3 of 25

• How to Open a Joint Checking Account

  4 of 25

• Account Balance

  5 of 25

• Non-Sufficient Funds [NSF]

  6 of 25

• Routing Transit Number

  7 of 25

• Why Overdraft Protection Matters

  8 of 25

• Overdraft Protection: Pros and Cons

  9 of 25

• The Consequences of Overdrawing a Checking Account

  10 of 25

• What to Bring to a Bank to Open a Checking Account

  11 of 25

• The Pros and Cons of Online Checking Accounts

  12 of 25

• Do Checking Accounts Have Beneficiaries?

  13 of 25

• Understanding Checks

  14 of 25

• Bounced Checks Explained

  15 of 25

• When Do Checks Expire?

  16 of 25

• How to Write a Check in 5 Easy Steps

  17 of 25

• The Basics of Debit Cards

  18 of 25

• Keeping Your Debit Card Transactions Safe

  20 of 25

• Top 10 Checking Accounts for Teens

  21 of 25

• How to Earn Cash Back on Debit Purchases for February 2022

  22 of 25

• The Best High-Interest Checking Accounts for February 2022

  23 of 25

• Understanding Zero Balance Accounts

  24 of 25

Related Terms

How Overdraft Provides Protection

An overdraft occurs when there isn't enough money in an account for a transaction or withdrawal, but the bank covers the transaction anyway.

How Does a Checking Account Work?

A checking account is a highly liquid deposit account held at a financial institution that allows deposits and withdrawals.

Why Overdraft Protection Matters

Overdraft protection is a fund transfer or loan that banks offer to customers to cover checks or debits larger than their account balances, so as to avoid nonsufficient funds fees.

Bounced Checks Explained

A bounced check is slang for a check that cannot be processed because the writer has insufficient funds.

Linked Transfer Account

A linked transfer account is when accounts held by an individual at a financial institution are connected to each other.

Linked Savings Account

A linked savings account is a savings account that is connected to another type of account like a checking account.

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