What Nonsufficient Funds (NSF) Fees Are and How To Avoid Them

When you write a check against an account that doesn’t have enough money to pay it, you’ll be charged a nonsufficient funds (NSF) fee. The amount of the NSF charge varies per bank, however, it typically ranges from $27 to $35. Knowing how to prevent NSF fees can help you keep your credit in good standing and save money.

What is a Non-Sufficient Funds Fee (NSF)?

When a check is submitted against a checking account with insufficient funds to support the transaction, the bank will levy an NSF fee. Overdraft costs should not be confused with NSF fees. When banks accept cheques that overdraw checking accounts, they charge overdraft fees. NSF fees, on the other hand, are incurred when banks return presented checks because the amount is insufficient to fund the transaction.

For example, suppose you wrote a $1,000 check to a vendor. You overlooked, however, that your checking account balance is just $800 and that you are not covered by overdraft protection. The cheque was returned to your supplier because there were insufficient funds when he presented it to the bank. As a result of writing checks against a nonsufficient balance, the bank assessed your NSF costs.

What Is the Cost of an NSF Fee?

In the United States, the average NSF cost for returned items due to insufficient funds is between $27 and $35, however this varies per bank. When numerous checks are submitted and your account balance is insufficient to pay them, you will be assessed repeated NSF fines.

What Is an NSF Check and What Does It Mean?

An NSF check, also known as a bad check, is one that bounced or did not clear due to insufficient money in the checking account to cover the check’s amount.

If you write a check for an amount greater than your checking account balance, it will bounce and be termed an NSF check, for which you will be charged an NSF fee by the bank.

How to Avoid Non-Sufficient Funds (NSF) Fees

The easiest approach to minimize NSF fines is to avoid writing checks that exceed the amount of your company checking account. Not only will writing NSF checks cost you money, but it will also damage your bank’s image and harm your business ties.

Here are some options for avoiding NSF fees:

• Regularly monitor your account: Keeping track of your account on a frequent basis is crucial to guarantee that you have enough money in your account to cover all of your check transactions. Online banking and smartphone applications make it simple to keep track of your accounts on a regular basis.
• Keep track of your financial activities by comparing your check and automated payment transactions to your account balance. Before writing checks or making automated payments, be sure you have a sufficient amount in your account.
• Deposit more cash into your account: You may construct a buffer by putting a certain amount of money into your account that should always be there. If you must use it, be careful to replace it as quickly as possible.
• Obtain overdraft protection: Most banks provide overdraft protection, which you may obtain when you create an account. Your transactions will go ahead with overdraft protection even if your account doesn’t have enough cash to cover them. While this may assist you to prevent NSF costs and damage to your business connections, you will still be charged per-incident overdraft fees.
• Set up balance notifications: Some banks let you set up email or text alerts to be alerted when your account goes below a specified level. When you establish a business account, inquire whether the bank provides this service.
• Seek an NSF fee refund: You may contact your bank directly to request a refund, or you can utilize third-party services to assist you to negotiate potential reimbursements.

What to Do If You Fail to Write a Check

While writing a bad check is not recommended, it is conceivable that you will make a mistake and fail to adequately replenish your checking account. There are measures you may do to correct the problem or avoid future harm if this occurs:

1. Contact the check’s payee: As soon as you learn that your check has bounced, you must immediately contact the receiver to apologize. This will assist you to avoid jeopardizing your company connection with the receiver of the cheque.
2. Pay your debt: Work out a payment plan with the receiver and pay your bill as quickly as possible, including any returned check fees.
3. Pay the bank’s NSF fees: Make sure you pay the bank’s fees. If you have a strong working relationship with your bank, you may also seek a refund.
4. Request receipts or acknowledgement of your payments: Once your debt is settled, ask the check payee for receipts. Also, get a receipt from your bank for the NSF costs you paid.
5. Monitor your account and financial transactions: To avoid making the same mistake again, it’s critical to keep a close eye on your account and all of your financial transactions.

What Should You Do If You Get a Bad Check?

You may not be told that a check you deposited has bounced for many weeks. This is why you should constantly check your account to verify that you have sufficient cleared money to support your financial activities. Depending on the bank, you may be charged a returned check fee ranging from $20 to $40 or a percentage of the check value if the check you deposited bounced.

If you get a bad check, do the following steps:

1. Make contact with the check’s issuer: Notify the check’s issuer right away that the check has bounced and that the matter must be resolved as soon as possible. Make any appropriate payment arrangements, and if a returned check fee is incurred, request a refund.
2. Re-cash the check: Only re-cash the check if you’re certain it’s still valid. Rather than putting the check into your account, you should cash it straight from the issuer’s bank. If there are still insufficient money in the issuer’s account, you won’t be charged another fee.
3. Send a demand letter: If the check has not been funded and no payment arrangements have been made between you and the issuer, you can send a demand letter or a bad check notice to the issuer and the issuer’s bank via certified mail with a request for a return receipt to the issuer and the issuer’s bank. Request payment for the amount of the bounced check, certified mail costs, and the returned check charge within 30 days.
4. If you don’t hear back from the issuer by the time, you have the option of filing a complaint in small claims court against the issuer. Your claim should not exceed the small claims limit in your state, which normally varies from $2,000 to $5,000. Because attorneys are not permitted to represent you in small claims court, you must come prepared with documentation of the bounced check, a copy of your demand letter, a certified mail receipt, return receipts, and any other papers that may assist you with your claim.

Most Commonly Asked Questions (FAQs)

Do NSF Fees Have an Impact on My Credit Score?

While NSF costs do not affect your credit score directly, writing bad checks may have a negative impact on your banking history. Bounced checks may also show on debit reports, which detail your financial history and allow institutions to create new accounts and impose withdrawal limitations, according to Experian. Furthermore, if the NSF checks are for loans or credit cards, they may have an impact on your credit if they are refused and you are unable to meet your commitments on time.

Is it possible to have an NSF fee waived?

Depending on the bank and your connection with them, NSF fines may be waived. NSF costs are normally waived if you have an excellent financial history with the bank and this is your first time making a mistake. If you’ve been charged an NSF fee and there’s a solid reason for it, you should call your bank straight once to obtain a refund.

What’s the Difference Between NSF Fees, Returned Check Fees, and Overdraft Fees?

Costs imposed to the issuer of a check that bounced owing to insufficient funds are known as NSF fees. The bank charges the receiver of the check a returned check fee for depositing a bad check. Overdraft costs apply when a check is placed against insufficient funds and the bank accepts it, resulting in a negative balance on the issuer’s checking account.

Is Having Overdraft Protection Beneficial?

While overdraft protection will not help you save money since you will still be charged per incident for overdraft fees, it will help you minimize the danger of damaging your business connections due to returned payments. Overdraft protection might also let you relax about your checks clearing if you neglect to deposit funds into your account. However, depending on overdraft protection too regularly isn’t a good idea, since having your account overdrawn on a regular basis might hurt your credit score.

Conclusion

NSF fees are unwarranted costs that might deplete your company’s money. Fortunately, these fees are readily avoided if you keep track of your financial activities and the amount of your company checking account. Take time to balance your checkbook on a regular basis and make sure you have enough money in your account to fulfill all of your bills. This will help you avoid writing faulty checks and incurring NSF fines.