What is an NSF Check?

An NSF check is a check that was not honored by the bank of the entity issuing the check, on the grounds that the entity's bank account does not contain sufficient funds. In effect, the party writing the check did so for an amount exceeding the remaining cash balance in the associated checking account. This situation may also arise when a bank account has been closed. NSF is an acronym for "not sufficient funds."

Characteristics of an NSF Check

The key characteristics of an NSF check are as follows:

Insufficient account balance. The issuing account does not have enough money to cover the amount specified on the check.
Bank fees. The account holder who issued the NSF check is typically charged a non-sufficient funds fee by their bank. The recipient of the NSF check may also be charged a fee for depositing a bounced check.
Check is returned. The bank returns the check to the depositor, indicating that it could not be cleared. The check is marked as "NSF" or "returned unpaid."
Possible legal consequences. In some jurisdictions, knowingly issuing an NSF check can result in civil or criminal penalties. In addition, the recipient may take legal action to recover the amount owed and additional damages.
Notification to the parties. Both the issuer and the depositor are typically notified of a bounced check. The notification may include the reason (e.g., insufficient funds) and any associated fees.
Requires repayment. The issuer of the NSF check remains liable for the original amount and any additional fees incurred.
Can trigger overdraft protection. If the account has overdraft protection, the bank may cover the check amount but charge an overdraft fee. Without overdraft protection, the check is simply returned unpaid.

NSF Check Fees

The entity attempting to cash an NSF check may be charged a processing fee by its bank. The entity issuing an NSF check will certainly be charged a fee by its bank. An alternative situation is that the bank of the entity issuing the check will honor the check, and then charge an overdraft fee to the check issuer. In this latter case, the entity cashing the check will not be charged a processing fee by its bank, since the funds have cleared.

How to Avoid an NSF Check

Someone issuing checks can avoid an NSF check by conducting ongoing check reconciliations. Doing so makes it less likely that any checks will be issued for amounts that are not currently present in a bank account. Another option is to always maintain excess funds in a checking account, though this approach reduces your ability to earn interest on invested funds.