Key takeaways:
- A returned item fee, or non-sufficient funds (NSF) fee, is what your financial institution charges when it declines or returns a transaction because of insufficient funds in your account.
- Returned items Many terms describe an item that is returned — including NSF, bounced check, returned check, dishonored check, bad check, and rubber check. can also occur if a payment is presented to a closed or frozen account.
- The average NSF fee ranges from $27 to $40 per item.
- An NSF fee can affect your reputation and ChexSystems report, add to your expenses, or cause the bank to close your account.
How a returned item fee works
When your bank attempts to clear a check or an electronic payment through your account and your balance has insufficient funds to cover it, the transaction will be declined or returned. If the transaction is a check, it would be flagged as NSF and sent back to the bank it’s drawn on. The bank will then charge you a returned item fee.
For most consumers and businesses, having a check returned is a rare occurrence or a mistake that is corrected immediately. If this is an honest mistake, a returned check fee is charged, and the item can be reprocessed as soon as the funds are available.
Over the years in banking, I’ve assisted many customers through this process, and most have been able to take a few internal steps to prevent this from happening again. Here are a few tips.
- Set up all payables on a calendar with clear due dates and amounts so that you can plan ahead.
- Set reminders or alerts in your computer for important payables — such as quarterly tax payments, mid year membership dues, or annual expenses — so that they can be factored into the cash till.
- Allow an additional trusted employee access to the payables and calendars. Two sets of eyes are better than one.
- Set a daily reminder on your phone late in the afternoon but prior to the bank closing to check the balances on all accounts. This way, you’ll see if any unexpected items that could make the account negative have been processed; then, make transfers accordingly.
- Factor in bank fees and reconcile your account daily to ensure all extra expenses are documented in your A/P software.
- Monitor your account daily for fraudulent items, and notify the bank immediately.
- Close out each month according to your A/P software to ensure every month has been reconciled and you are ready for a fresh start on the new month.
NSF fee example
Say you wrote a check to a supplier amounting to $1,000. However, you forgot that your checking account balance was only $800 and that you do not have overdraft protection.
When your supplier deposits the check to their bank, it will be returned because of insufficient funds. The bank will then charge you a returned item fee as a penalty for writing checks against an insufficient balance. In some cases, the supplier that deposited your check will also receive a returned check fee from their bank and may pass that fee along to you to recover their loss.
Returned item fee cost
The average returned item fee in the US ranges from $27 to $40 per item — and this amount can vary from bank to bank. If you write multiple checks that your balance cannot cover, you will be charged a bounced check fee per check presented until you reach the bank’s daily fee limit, if applicable.
NSF fee caps by state
Select your area from the drop-down list below to see the NSF fee cap* per returned item.
$30
$30
$25
$30
$25
$20
$20
$40
$25
- $25 if amount is ≤ $50
- $30 if amount is ≤ $300
- $40 if amount is ≤ $800 or 5% of check amount if > $800
- $30 if amount is ≤ $600
- 5% of check amount if > $600
$30
$20 or amount of check, whichever is less
$25
$25
$30
$30
$25
$25 or 5% of check amount, whichever is greater
$25
$35
$25
$25
$30
$40
$25
$30
$25
$25
$25
$25
$30
$20
$25
$40
$30 or 10% of check amount, whichever is greater
$25
$25
$25
$10
$25
$30
$40
$30
$30
$20
$25
$50
Lesser of $40 or face amount of check
$25
$25
$30
*Information from VeriCheck’s State Allowed NSF Fees.
Impacts of a returned item fee on your business
1. Your fees add up: If you have numerous declined transactions, NSF fees can easily add up. Some banks charge multiple returned item fees in a day if several items are returned. For example, Chase’s business checking can charge up to six insufficient funds fees per day at $34 each, so that could cost you up to $204 a day. Meanwhile, Bank of America can charge up to four a day at $35 each, or up to $140 per day.
2. Your business reputation might suffer: Declined transactions often result in late payments, which can hurt your relationship with clients, suppliers, or vendors. If your business builds a reputation for writing bad checks, other businesses may refuse to work with you.
3. Your bank may close your account: If your business has too many returned items, your bank may close your account completely. Accounts closed due to returned item fees can often be turned over for debt collection, which could end up damaging your credit.
4. You may earn a negative ChexSystems report: Although bounced and returned checks do not have a direct impact on your credit score, having negative items on your banking history may affect a ChexSystems report, which is what many US banks use to analyze a business’s level of risk. If you have a negative ChexSystems report, banks may refuse to let you open an account.
How to avoid a returned item fee
- Monitor your account regularly: Ensure that you have enough funds to cover all your check transactions by regularly checking your balance. Mobile and online banking allow you to check your account balances on the go.
- Track your financial transactions: Monitor your check transactions and automatic payments and compare them with your account balance. Be sure to have a sufficient balance in your account before writing checks and before your automatic payments are due.
- Sign up for balance alerts: Set up email or mobile text alerts that notify you when your account falls below a certain threshold. Balance alerts may also help you spot suspicious charges.
- Deposit extra funds in your account: Set a minimum target balance to create a buffer against insufficient funds. Deposit funds regularly to keep your account balance within this threshold. Whenever your balance falls below your target, replenish the amount as soon as possible.
- Sign up for overdraft protection: Enroll in overdraft protection when you open a business bank account. With it, your bank transfers funds from your savings account or credit line to cover any transaction against insufficient funds. While it can help you avoid incurring returned item fees and hurting your business relationships, you usually need to pay fees for overdraft protection services.
- Choose a bank without NSF fees: Select a financial institution that doesn’t charge NSF fees. Bluevine, for example, declines transactions due to insufficient funds but does not charge fees for the mistake. You can read our review of Bluevine business checking for more information.
What to do if you write a bad check
Although you should do your best to avoid returned item fees, it’s helpful to know what to do if you accidentally write a bad check. Here’s the process to remedy the situation or prevent further damage.
- Step 1: Contact the payee of the check as soon as you find out that your check has bounced — and apologize. This way, you can avoid damaging your business relationship with the recipient.
- Step 2: Make payment arrangements with the recipient and pay your debt as soon as possible, including the returned check fee, if applicable.
- Step 3: Pay the returned item fees charged by the bank. If you have a good business relationship with your bank, you can also try to request a refund.
- Step 4: Ask for receipts or acknowledgment of your payments from the bank once your balance is paid.
- Step 5: Monitor your account and financial transactions regularly to prevent repeating the mistake.
When an NSF is considered fraud
As mentioned, a returned check is generally an oversight or a genuine mistake. However, for others, writing a bad check is a way to commit bank fraud. An NSF is considered fraudulent when someone has the intent to commit bank fraud — and this is called check kiting.
Check kiting always involves two different banks. When someone is purposely kiting checks, they deposit a bad check at the first bank and immediately deposit an offsetting check at the second bank. Neither of the checks has the funds to back them up.
The cycle of check kiting is as follows:
- A criminal writes a check drawn off an account they have at Bank A and deposits it at Bank B.
- They write an offsetting check from their account at Bank B and deposit it in Bank A.
- Neither of the accounts have enough funds to cover the checks.
- During the check float A check float refers to the period when funds from a check are tied up during processing.If a check is deposited at Bank A, there is a short span of time before it reaches Bank B, where the funds are actually withdrawn from the account and reflect in the balance.During the float time, the account balance at both banks reflects credit for the check. , the criminal withdraws the pending funds or uses their debit card to spend the phantom funds at Bank A.
- They do the same process at Bank B.
- By the time the two checks reach the banks for processing, both accounts have been wiped out, so the criminal has successfully committed bank fraud.
Frequently asked questions (FAQs)
A returned item fee is only charged if an item is presented for collection and the balance is not sufficient to pay the item in full. When this occurs a returned check fee or an overdraft fee will be assessed depending on the services you have set up at your financial institution.
An overdraft fee is charged when your bank approves a transaction against an insufficient balance and covers the costs temporarily, resulting in a negative account balance. Meanwhile, a returned item fee is charged when the bank declines a financial transaction because of insufficient funds, resulting in bad checks or returned payments.
The best way to ensure an item is never returned is to continually monitor your account and check the presentments each day against the available funds. If you notice a shortfall, make an electronic transfer to add funds to the account before the transactions settle for that business day. You can also sign up for overdraft protection and set up strategic record-keeping protocols to know when transactions will post to your account before they arrive.
