Non Sufficient Funds

Non-sufficient funds (NSF) occur when a checking account lacks enough balance to cover a transaction. NSF checks, also known as "bounced" or "dishonored" checks, are returned by the bank unpaid.
Non Sufficient Funds
3 min

A situation that any business could face at some point is that of a non-sufficient fund. Non-sufficient funds (NSF) occur when a checking account lacks enough balance to cover a transaction. NSF checks, also known as "bounced" or "dishonored" checks, are returned by the bank unpaid. Read the full article to explore everything about non-sufficient fund.

What are non-sufficient funds

A non-sufficient fund situation usually arises when the account holder uses cheques, makes hefty payments with his debit card, or even ACH payments like a direct deposit. For instance, making a payment of Rs 1 lakh when there is only Rs 80,000 in the bank’s account amounts to insufficient funds worth Rs 20,000.

Moreover, automatic withdrawals are known to be responsible for most non-sufficient fund cases. A majority of businesses usually automate multiple processes, particularly payments. Such automatic withdrawals are likely to be easily forgotten after they are set up.

What are the consequences of non-sufficient Funds

Insufficient funds, which are also called non-sufficient funds, can be damaging to a business if it does not have enough money in its bank account for making a payment or covering a particular transaction. For instance, if the company issues a cheque to a creditor, which subsequently bounces, the business may face a criminal charge under the provisions of the Negotiable Instruments Act.

Moreover, the account holder and payee also stand to pay the following additional charges:

  • An NSF fee that depends on the volume of non sufficient funds in the said bank account as also the policies of the banking institution. These fees can range from around $25 to $40 per occurrence, though they can sometimes be higher. Some banks may also charge additional fees for each day the account remains overdrawn.
  • The payee might have to pay charges to his bank due to the payer’s insufficient funds.
  • Since NSF fees can be costly for small businesses, they tend to negatively influence the financial condition of such businesses, apart from tarnishing their reputation.
  • Fees payable for non-sufficient funds vary from bank to bank as well as the location. Some banks and states may charge higher fees, and the payee may have to shell out a percentage of the cheque or bounced amount, which may be as high as 20%.
    NSF fees usually range between $25 and $40 for every occurrence, even though they may spiral in certain cases. Some banks also charge an additional fee daily if the account is overdrawn.
  • It's essential to check with your bank or financial institution to understand their specific fee structure for insufficient funds and any associated policies. It's also a good idea to monitor your account balance regularly to avoid overdrawing your account and incurring these fees.

How to avoid non-sufficient fees situation

In order to rectify a non-sufficient fund situation, the following steps need to be taken:

Contact the payee immediately: The payee needs to be informed immediately and assured that his full and final payment will be made. This would assure him that the payer has no intention of intentionally withholding his payment, and the payment can also be made directly in cash or by using a credit card.

Payment of outstanding dues: The outstanding payment to the affected party needs to be made mandatorily. Moreover, if it has had to pay an NSF fee to its bank, it has to be reimbursed accordingly.

Payment of requisite NSF fees: Again, for NSF fees payable for non-sufficient funds, it is always advisable to check with the bank and make the necessary payments right away to avoid extra interest charges.

Keeping relevant receipts: Once such payments have been made, it is imperative that all receipts of payments be properly documented to avoid any confusion or disputes in future.

In fluke cases: It is also seen that a non-sufficient fund may arise as a one-time fluke. In such a case, the bank may be requested to enforce the collection, which is a direct transfer of all dues to the payee’s account once the payer makes a deposit in his account.

What are NSF fees?

NSF fees, also known as non-sufficient funds fees, are charges imposed by banks when an account lacks sufficient funds to cover a transaction. The average NSF fee is around $19.94, although it can go up to $36 per transaction. These fees are typically assessed when a bank declines a payment or check due to insufficient funds, resulting in bounced checks or declined electronic payments.

Are NSF fees legal?

As previously mentioned, non-sufficient fund fees are punitive fees charged by banks when a transaction is declined due to insufficient funds. Charging NSF fees is legal, and there aren’t any federal laws governing how much a financial institution can charge. That said, banks are required to disclose their NSF policies and select institutions put a cap on the number of fees they charge daily.

What to do if you have insufficient funds?

If you have insufficient funds in your bank account, there are several steps you can take to resolve the issue:

1. Assess the situation

  • Review your account balance to identify the specific transaction that resulted in insufficient funds.
  • Understand the root cause of the issue to take appropriate actions.

2. Contact the payee

  • Reach out to the payee promptly if the insufficient funds are related to a specific payment or check.
  • Discuss potential alternatives, such as rescheduling the payment or arranging for an alternative payment method.

3. Review overdraft options

  • Check if your bank offers overdraft protection or overdraft lines of credit.
  • Familiarise yourself with the terms and conditions associated with these options.

4. Deposit Additional Funds

  • If possible, deposit additional funds into your account to cover the shortfall.
  • This can be done through various methods, such as transferring money from another account, depositing cash, or initiating a mobile deposit.

5. Prioritise payments

  • If you have multiple payments pending and limited funds, prioritise essential expenses such as rent, utilities, and groceries.
  • Communicate with other payees to negotiate payment arrangements or request extensions if necessary.

6. Monitor your account

  • Keep a close eye on your account balance to avoid further overdrafts or insufficient funds.
  • Utilise online banking tools or mobile apps to track your transactions and set up alerts for low balances.

7. Adjust your budget

  • Take this opportunity to reassess your financial situation and make necessary adjustments to your budget.
  • Identify areas where you can reduce expenses or increase income to prevent future instances of insufficient funds.

8. Seek financial advice

  • If you find yourself constantly facing insufficient funds, consider consulting a financial advisor or credit counsellor.
  • They can provide personalised guidance and help you develop strategies to improve your financial situation.

Six ways to avoid NSF fees

1. Track your expenses

  • Stay on top of your expenses by using a monthly budgeting spreadsheet or a budgeting app that tracks linked accounts.
  • Regularly review your expenses to ensure you have sufficient funds for transactions.

2. Monitor your checking account

  • Regularly check your checking account balance and posted transactions to stay aware of pending expenses.
  • Keep track of automatic payments and checks to avoid unexpected transactions.

3. Link your checking account to a savings account

  • If your bank allows it, link your checking account to a savings account to transfer funds if you overdraw.
  • Ensure you have sufficient funds in the linked account to cover overdrafts.

4. Keep extra funds in your account

  • Maintain a cushion in your account by adding extra funds that you don't touch.
  • This can help protect against NSF fees by ensuring you have sufficient funds for transactions.

5. Set up bank account alerts

  • Utilise email or mobile alerts from your bank to notify you when your account balance is low.
  • These alerts can help you stay on top of your finances and avoid NSF fees.

6. Switch banks

  • If your bank charges excessive NSF fees, consider switching to a bank that doesn't charge NSF fees or offers overdraft protection.
  • Some banks do not charge NSF fees.

Difference between NSF fees and overdraft fees

NSF (non-sufficient funds) fees and overdraft fees are two distinct types of fees charged by banks and credit unions when an account lacks sufficient funds to cover a transaction. The primary difference lies in whether the transaction is allowed to clear or not:

Overdraft fees

  • An overdraft fee is charged when a bank covers a transaction that overdraws an account, allowing one or more transactions to clear.
  • The bank temporarily covers the transaction, and the customer is expected to pay back the fee as well as the money loaned from the bank.
  • Overdraft fees can be avoided by opting into overdraft protection, which allows transactions to go through when there are insufficient funds.

NSF fees

  • An NSF fee is charged when a bank declines a transaction that would bring the account to a negative balance.
  • The transaction is not allowed to clear, resulting in bounced checks or declined electronic payments.
  • NSF fees can occur when a bank does not offer overdraft protection or when the overdraft protection limit is exceeded.


Hence, it is imperative that the financial institution or bank is contacted to understand its fee structure or its policies on non-sufficient funds. Furthermore, it is also advisable to monitor the account’s balance regularly in order to avoid overdrawing the account and paying these fees as a consequence.

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Frequently asked questions

What is a non-sufficient funds fee?

A non-sufficient funds (NSF) fee is the charge levied by a financial institution or bank when its customer makes a payment in spite of the absence of sufficient funds in his account for covering the transaction. In other words, it is a penalty and helps in covering the costs the bank incurs to process the transaction and handle the overdraft situation.

What happens when you get NSF?

Insufficient funds in a bank account leads to transaction rejection, charging of an extra NSF fee or overdraft fee, if the payer’s bank honours the transaction, which again may lead to the creation of a negative balance.

Do non-sufficient funds affect credit?

Non-sufficient funds are not known to affect credit scores directly since they remain unreported to all major credit bureaus like Experian, TransUnion, and Equifax.

What is the meaning of sufficient funds?

The term, sufficient funds implies enough money in a bank account for covering a transaction or for fulfilling any financial obligation. Having sufficient funds means the ready availability of funds to make a purchase, pay off a creditor, or undertake any financial commitment without having to overdraw the account or paying fees for non sufficient funds.

How do you record non-sufficient funds?

Recording non-sufficient funds transactions basically involves recording the NSF transaction in the business’s financial records with details like transaction date, amount, payee’s details, and the reason why the NSF situation happened, adjustment of account balance and regular monitoring thereafter, and addressing a negative balance immediately.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.