This article is part of a larger series on Business Banking.
A nonsufficient funds (NSF) fee is charged when you write a check against an account that does not have enough money in it to cover it. The amount of the NSF fee varies per bank, with an average that ranges between $27 to $35. Knowing how to avoid NSF fees will help you maintain a good credit standing and save on unnecessary costs.
What Is an NSF Fee?
An NSF fee refers to the fee charged by the bank when a check is presented against a checking account with an insufficient balance to cover the transaction. NSF fees should not be confused with overdraft fees. Overdraft fees happen when banks accept checks that overdraw checking accounts. Meanwhile, NSF fees occur when banks return presented checks because the balance cannot cover the transaction.
For example, you wrote a check to a supplier amounting to $1,000. However, you forgot that your checking account balance is only $800, and you don’t have overdraft protection. When your supplier presented the check to the bank, it was returned due to insufficient funds. The bank then charged you NSF fees as a penalty for writing checks against a nonsufficient balance.
How Much Is an NSF Fee?
The average NSF fee in the United States ranges between $27 to $35 per returned item due to insufficient funds, but this amount can vary from bank to bank. If you wrote multiple checks and your balance is not sufficient to cover them, you will be charged multiple NSF fees when these checks are presented.
What Is an NSF Check?
An NSF check is also known as a bad check—this is the check that bounced or did not clear because the checking account did not have enough funds to cover the amount of the check.
If you write a check for an amount larger than your checking account balance, this check will bounce back and will be considered as an NSF check, and the bank will charge you an NSF fee.
How to Avoid NSF Fees
The best way to avoid NSF fees is to make sure that you don’t write checks that go beyond your business checking account balance. Writing NSF checks will not only cost you unnecessary fees but can also hurt your banking reputation and adversely affect your business relationships.
Here are a few ways to avoid NSF fees:
- Monitor your account regularly: To ensure that you have a sufficient balance in your account to cover all your check transactions, it’s necessary to keep track of your account on a regular basis. Regular account monitoring is made easy with the use of online banking and mobile apps.
- Track your financial transactions: Monitor your check transactions and automatic payments and compare them with your account balance. Make sure you have a sufficient balance in your account before writing checks and before your automatic payments are due.
- Deposit extra funds in your account: You can create a buffer by depositing a certain amount of money that should always be in your account. If you have to use it, make sure to replenish this amount as soon as you can.
- Sign up for overdraft protection: Most banks offer overdraft protection which you can sign up for upon opening an account. With overdraft protection, your transactions will go through even if your account doesn’t have sufficient funds to cover them. While this can help you avoid NSF fees and hurting your business relationships, you will still be charged overdraft fees per incident.
- Sign up for balance alerts: Some banks allow you to set up email or mobile text alerts so that you are notified when your account falls below a certain threshold. When you open a business account, ask the bank if it offers this kind of service.
- Request an NSF fee refund: You can try requesting a refund by contacting your bank directly, or you can use third-party services that can help negotiate possible refunds for you.
What to Do If You Write a Bad Check
While writing a bad check is highly discouraged, it’s possible that you could make a mistake and forget to fund your checking account sufficiently. When this happens, there are steps you can take to remedy the situation or prevent further damage:
- Contact the payee of the check: As soon as you find out that your check has bounced, it’s important to contact the recipient right away to apologize. This will help avoid damaging your business relationship with the check recipient.
- Pay your debt: Make payment arrangements with the recipient and pay your debt as soon as possible, including the returned check fee if applicable.
- Pay the NSF fees: Make sure to pay the fees charged by the bank. You can also try to request a refund if you have a good business relationship with your bank.
- Ask for receipts or acknowledgment of your payments: Once your balance is paid, ask for receipts from the check payee. Also, ask your bank for a receipt for the paid NSF fees.
- Monitor your account and financial transactions: To prevent this mistake from happening again, it’s important to monitor your account and all your financial transactions on a regular basis.
What to Do If You Receive a Bad Check
It may take several weeks before you will be notified that a check you deposited has bounced. This is why you should monitor your account regularly to ensure that you have enough cleared funds to cover your financial transactions. If the check you deposited bounced, you may be charged a returned check fee ranging from $20 to $40 or a percentage of the check amount, depending on the bank.
Here are a few steps to take if you receive a bad check:
- Contact the issuer of the check: Let the issuer of the check know immediately that the check has bounced and that the problem needs to be addressed as soon as possible. Make payment arrangements as necessary and, if you are charged one, ask for a refund for the returned check fee.
- Cash the check again: Only try to cash the check again if you are sure it’s funded. It’s best to cash the check directly from the issuer’s bank rather than depositing it to your account. This way, you’ll avoid being charged another fee if there are still insufficient funds in the issuer’s account.
- Send a demand letter: If the check is still not funded, and if 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 through certified mail with a request for a return receipt. Request to be paid within 30 days for the amount of the bounced check, the cost of certified mail, and the returned check fee.
- File a case in small claims court: You have the option to file a case against the issuer in small claims court if you don’t hear back from the issuer by the stipulated deadline. The amount of your claim should not exceed your state’s small claims limit, which usually ranges from $2,000 to $5,000. Since lawyers are not allowed to represent you in small claims court, you have to be prepared by bringing proof of the bounced check, a copy of your demand letter, a certified mail receipt, return receipts, and any other documents that may help you with your claim.
Frequently Asked Questions (FAQs)
Do NSF Fees Affect My Credit Score?
While NSF fees won’t directly harm your credit score, writing bad checks can damage your banking record. Also, according to Experian, bounced checks can appear on debit reports, which lay out your banking history for institutions to open new accounts and set your withdrawal limits. Further, if the NSF checks are payments for your loans or credit cards, they may affect your credit if these payments are declined and you cannot pay your obligations on time.
Can an NSF Fee Be Waived?
NSF fees can be waived depending on the bank and your relationship with them. Banks usually waive NSF fees if you have a good banking record with them, and it’s your first time making such an error. If you’re charged with an NSF fee, and you have a good reason for the mistake, it’s important to contact your bank right away to request a refund.
How Do NSF Fees, Returned Check Fees, and Overdraft Fees Differ?
NSF fees are fees charged to the issuer of a check that bounced due to insufficient funds. Returned check fees are charged by the bank to the recipient of the check for depositing a bad check. Overdraft fees are fees charged when a check deposited against insufficient funds was accepted by the bank, resulting in a negative balance on the issuer’s checking account.
Is it Better to Have Overdraft Protection?
While getting overdraft protection will not help lower your costs―because you will still be charged overdraft fees per incident―you can avoid the risk of harming your business relationships due to returned payments. Having overdraft protection can also help ease your mind about your checks going through if you forget to fund your account. However, relying on overdraft protection too often isn’t recommended as having your account overdrawn frequently can harm your banking record.
NSF fees are unnecessary expenses that could eat up your business funds. Fortunately, these fees can be avoided easily if you monitor your financial transactions and your business checking account balance. Find time to balance your checkbook regularly and ensure that you have sufficient money in your account to cover all your expenses so you can avoid writing bad checks and being charged NSF fees.