Your financial plan is all about priorities. Here’s how to make one.
What is non-sufficient funds (NSF)?
Non-sufficient funds is the term used when the holder of a checking account is overdrawn — meaning there is not enough money in the account to pay the check written against it. The bank returns the “bounced” check to the accountholder and charges a returned-check charge, or a non-sufficient funds (NSF) fee.
A returned check stamped with NSF means the check has not been honored by the bank because the accountholder doesn’t have enough funds in the account or the account has been closed. Fees for non-sufficient funds are high, usually around $35 per check. This is why it is good to have a second account or an overdraft line as a backup in case the primary account runs low on funds.
The recipient of the bad check also may incur bank charges. If the payee has a second account with the bank, his bank will be able to fund the check. If there’s not a second account, however, the bank will charge the payee for trying to cash a check with non-sufficient funds. The issuer’s bank will charge an NSF fee to the writer of the check.
Non-sufficient funds example
Jimmy wrote a check for $2,000 to a roofing contractor, not realizing he had only $1,800 in his account. Jimmy’s bank returned the check to him stamped with “NSF” for non-sufficient funds and deducted $38 from his account for the NSF penalty fee. Jimmy went immediately to his bank to make a deposit that would more than cover what he owed the roofing contractor and the NSF fee. Jimmy wrote another check to the roofing contractor, which cleared without a problem.
To avoid getting hit with another NSF fee, Jimmy signed up for overdraft protection. He had a small savings account at the bank and gave the bank permission to tap it to cover checks if there was not enough money in his checking account.