NSF Fee: Definition, How To Avoid, Example & Why Do Banks Charge It?

When you do not have sufficient funds in your account to process a transaction, banks and credit unions charge nonsufficient funds, or NSF, fees. NSF fees can quickly accumulate, so it’s critical to take steps to avoid them. Discover further in this article, NSF Fee definition, Sufficient definition, NSF check. Also, NSF example, return item fee, and how to avoid it. Let’s get down to the business of the day. Happy reading!


When you make a payment without sufficient funds in your checking account, one of two things can happen: your bank will either cover the payment or will not.
Neither scenario is desirable, and both will incur fees. However, bouncing a payment may result in additional third-party charges. In addition to your bank’s nonsufficient funds fee. Check out the NSF example below as you continue reading.

According to a Center for Responsible Lending study of FDIC data, NSF fees cost Americans billions of dollars each year. However, if you know-how, you can avoid them.

Pay Attention: Ach Hold: Meaning & What is for?

You can also refer to “NSF” or “insufficient funds” as a checking account. Perhaps, the one that does not have sufficient funds to cover transactions. When attempting to withdraw more money than your account currently holds, you may see “non-sufficient funds”. This will appear on your bank statement or at an ATM terminal (or on a receipt).

Importantly: Check the sufficient definition below.

What Is NSF Fee?

NSF fee is the fee assessed by your financial institution when you fail to make a payment. Especially, when the issuer does not have sufficient funds in their account to cover it. In addition, there are some other circumstances in which you may be charged an NSF fee. Meanwhile, we’ll discuss those a little later, with an NSF example.

Bounced payments and NSF fees can be costly in a variety of ways.

You Need To Read: Ach Credit: How Does it Work? What You Need To Know

If your payment is returned unprocessed, the payee (the individual or business who was supposed to be paid) may assess a returned check fee. This, however, will be in addition to the NSF fee assessed by your bank. Meanwhile, you may be charged late fees or have service canceled. However, if you do not resolve the situation, your account may be turned over to a collection agency.

Additionally, if you default on a payment on an account that is reported to the credit bureaus, it may have a negative impact on your credit. NSF fees are fundamentally distinct from overdraft fees.

Take Away Tip: NSF fee is the fee assessed by your financial institution when you fail to make a payment. Especially, when the issuer does not have sufficient funds in their account to cover it. In addition, there are some other circumstances in which you may be charged an NSF fee.

Neptunmag Experts

Are NSF fees Legal?

True. If there are insufficient funds to cover a transaction, banks and credit unions may charge a fee. Each financial institution sets its own fees and while the federal government does not regulate fee amounts, states typically do.

When you open an account, the Truth in Savings Act requires all banks and credit unions to provide you with a fee schedule outlining and explaining all fees. It’s critical to carefully read it and your account agreement to ensure that you understand any potential charges. For clearer knowledge, see the NSF example I explained below.

Find Answers: Is 600 a Good Credit Score?: Find The Right Answer To Your Question & How To Improve

Are Non-sufficient Funds, or NSF fees Refundable?

Basically, Banks don’t waive or refund NSF charges. However, it is not a bad idea to inquire about a refund of an NSF fee from your financial institution. Perhaps, the bank may be willing to work with you. Some institutions can have programs in place that waive fees if certain criteria are met.

How much are NSF fees?

According to the FDIC, the average fee for overdrawing an account in the United States is around $30. However, fees can range between approximately $10 and nearly $40, depending on the bank and its policies.

Because financial institutions are not required to notify you when a check bounces due to a lack of funds, NSF fees can accumulate quickly. Meanwhile, multiple fees may be incurred as a result of a single miscalculation of your checking account balance and you may be unaware of them until you receive your statement.

This May Interest You: When Do Mattresses Go On Sale: Cost, Cheap Mattress, Best Time to Buy a Mattress

Consider the following scenario to illustrate how NSF fees can accumulate.

You believe you have $300 in your checking account (but are unsure). However, you’re anticipating a deposit in the near future, and so you proceed to write checks for $10, $65, $185, and $350, in that order. What could possibly go wrong? Consider these following missteps below.


#1. By incorrectly calculating the available balance in your account, it is already at risk of being overdrawn. In the future, you can avoid this by always checking your available balance on your account statement or in your online account prior to making payments.

#2. You wrote checks in excess of the balance you believed you had in the account. It is never a good idea to write checks for more than what you currently have in your account.

Very Important: Money Management: Definition, Importance & Simplified Guideline(+ tips & pdf)

#3. You assumed the bank would pay the checks in the order in which they were written. However, your bank may credit your account in an order consistent with its disclosed practices. Assume that the bank first posts the $350 check.

As a result? Your account is immediately overdrawn in order to cover the $350 payment. Also, for the subsequent three checks. This means you may incur an NSF fee for each of the four payments. If your bank charges a $35 non-sufficient funds fee, you may owe up to $140 in fees. Meanwhile, that is a steep price to pay and that is before any potential penalties imposed by the check’s recipient.

NSF Check

You can refer NSF check as a bounced or bad check. When a bank receives a check written on an account that does not have sufficient funds, the bank has the option of refusing payment and charging the account holder an NSF fee. Additionally, the merchant may charge a penalty or fee for the returned check. See the NSF example below.

Meanwhile, if you do not have sufficient funds in your account to cover the check, your bank will likely notify you immediately. However, this means the fees will appear in your account shortly after your payee attempts (in vain) to cash or deposit it.

Learn: How to Make a Budget in 5 Easy Steps For Beginners

Fraudulent checks

A bank may take weeks to detect and return a fraudulent check. Therefore, if you deposit a bad check that someone else provides, it may take some time before the bank notices, reverses the deposit, and potentially charges you any NSF fees.

Debit Cards Transactions

In general, Banks are prohibited from charging NSF fees on debit card transactions, if declined due to insufficient funds.

Discover: How to Save Money: 10 Simple Ways for Beginners, Savings Strategies

NSF Example

Have a look at this NSF example below.

John wrote a $2,000 check to a roofing contractor, unaware that he only had $1,800 in his account. John’s bank returned the check to him with the notation “NSF” for non-sufficient funds and deducted $38 from his account to cover the non-sufficient fund’s penalty fee. He immediately went to his bank to make a deposit that would cover his debt to the roofing contractor and the non-sufficient fund’s fee. John repaid the roofing contractor with another check, which cleared without incident.

You Need To Understand: Saving vs Investing: Beginners Guide, The similarity & Difference (+ Saving & Investing tools)

How Does NSF Fee Work?

If a presented check is returned due to a lack of funds to cover it, banks frequently charge NSF fees.

Numerous banks’ fees for returned checks are a source of contention between consumers and banks. Because fees are typically fixed in nature, the consumer advocates assert. Customers are effectively paying extraordinarily high interest rates on relatively small account balances.

Pay Attention: Saving Strategies: Meaning, Best Options For 2021 & Saving vs Investing

Further Explanation

In the United States, the average NSF fee is between $27 and $39, many items at $30 price rate.

Banks offer several ways for account holders to avoid the penalties associated with insufficient funds transactions. You can opt-out of certain overdraft policies that allow the bank to cover fees and charge an NSF fee. Typically, you can also link a backup account, such as a savings account or credit card. Which can act as a secondary source of funding.

NSF Fees vs Overdraft

Non-sufficient funds and overdrafts are two distinct terms, though both refer to a cash shortage and may result in fees. Banks charge non-sufficient funds (NSF) fees for returned payments (e.g., checks) and overdraft fees for checks that overdraw checking accounts.

Consider having $100 in your checking account and initiating an automated clearing house (ACH) or electronic check payment for a $120 purchase. And, if your bank declines to pay the check, you will be charged an NSF fee. This, however will be subject to any penalties or charges imposed by the seller for returned checks. Contrary, in the situation whereby the bank accepts the check and pays the seller. It will decrease your checking account balance to $20, which will result to overdraft fee.

In either case, the bank’s fee reduces the available account balance.

NSF Return Item Fee

NSF return item fee is a charge that some banks levy when an account does not have sufficient funds to cover a transaction. However, this is the same as the NSF fee. You can also refer to it as a “bounced check” or “NSF check,”. Meanwhile, it is common when paying with checks or online automatic payments.

Additionally, to give you a taste of the good news, N26 does not charge for returned items, so you can shop with confidence.

What Do You Know About: Investment: Definition, Types, Best Guide for OPtimal Result(+ how it work)

How Can You Avoid NSF Fees?

If you’re not careful, NSF return item fee can add up quickly. Here are a few pointers to assist you in avoiding them.

1. Keep track of your expenditures.

Ensure that you record all debits from your account in your check register, including written checks, electronic transfers, debit card transactions, and ATM withdrawals.

2. Keep an eye on the balance of your checking account.

Regularly check your account balance to determine how much money is available. Bear in mind that your balance may not reflect all checks written or electronic transactions scheduled. Even if your bank includes pending transactions in your available balance, it cannot include transactions that it is unaware of, such as the check you wrote for your niece’s graduation present but has not yet cashed.

3. Establish a link between your checking and savings accounts.

The wisest decision is to link your accounts. For money to be transferred automatically from savings to checking. Especially if your checking account does not have enough funds to cover a transaction. The transfer charges though are typically less than the NSF fee.

This May Interest You: Investment Plan: All you need to know Explained in Detailed(+ free tips)

4. Always keep a financial cushion on hand.

You have to maintain an excess of cash in your checking account above your monthly debt payment. This allows for some wiggle room if you forget to record a withdrawal or make an incorrect balance calculation.

5. Create alerts for low balances.

Certain banks allow you to receive notifications when your account balance falls below a certain threshold, alerting you to the need to halt withdrawals or deposits.

Note: Avoid NSF return item fee on time.

Read Also: Credit Card Refinancing: Vs Debt Consolidation, What You Should Know

Sufficient Definition

Consider sufficient definition as:

When your account is not insufficient, definitely it should be the opposite, sufficient. What does it mean for your account to be sufficient so to avoid NSF fees? Consider the definition below.

If you have an adequate quantity of something, it is adequate. If it is not excessive, not insufficient, just right. Goldilocks, on the other hand, would be ecstatic.

You can get the word sufficient from the Latin word to suffice. However, this means “to meet a need.” Sufficient means that something has met, or satisfied, a need. Meanwhile, when something is insufficient, it is insufficient to meet the requirements. Sufficient, on the other hand, can also mean just enough and not an abundance.

Basically, before here, hopefully you understand what NSF return item fee is.

Learn More On: Options vs Stocks: What’s Better?Understanding The Difference (+ how to trade Options)


A returned check with an NSF stamp indicates that the bank did not honor the check. You will notice this if the cardholder doesn’t have sufficient funds or the account has been closed. Fees for checks returned due to insufficient funds are high, typically around $35 per check. This is why it’s a good idea to have a backup account or overdraft line in case your primary account runs out of funds. Take note of NSF fee, check, example, return item fee, and sufficient definition.

Attention Please! Found this article helpful? Like & Share!

Chiemerie Ozurumba (Adorablepen) is a freelance writer & Computer Science degree holder, a personal finance expert, blogger, public speaker, and poet. He is also a relationship & life coach. Currently a writer at BusinessYield.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: