Checks made on a bank account that does not have adequate money to pay the check are referred to as NSF check or “nonsufficient funds checks,” “hot checks,” or simply “checks that bounce,” among other names. To put it another way, the check will be returned to the sender because there is not enough money in the account.
Non-sufficient funds or NSF
The term “non-sufficient funds,” abbreviated as “NSF,” is synonymous with “insufficient funds,” which describes the circumstance in which you do not have sufficient funds in your bank account to pay for a certain cost. If you try to withdraw more money from your account than you currently have available, you can see a notification that says your account does not have adequate cash.
When anything like this happens, the financial institution (bank or credit union), in addition to collecting an NSF charge, may withhold payment or return the item to the customer without paying for it. There is a possibility that the merchant may impose a fee on top of the fee that is levied by the banking institution.
Also read, bank reconciliation
Checks that are considered to have insufficient funds are sometimes referred to as “bounced checks,” “returned checks,” or “non-sufficient funds checks.” If a check that you have written is returned to you unpaid because you do not have sufficient funds to cover the transaction, your bank may charge you a fee.
A returned check could result in additional fees being assessed to the account. The payee or the merchant can levy an additional fee for returned checks. If the check is returned to you, it could cause you to miss the deadline for your payment, which could result in expensive late fees. If you make a payment more than 30 days after the due date, the payment may be reported to the credit bureaus, which could have a negative impact on your credit score.
Example of NSF Check
During the warm summer months, Tom’s yard is cared for by a landscaper named Bill. At the end of the month, Tom hands Bill a check for one hundred dollars. The only problem is that Tom’s bank account only has fifty dollars in it. When Bill tries to deposit the check, his bank will not necessarily check Tom’s account balance to determine whether there is enough money in Tom’s account for the check to clear. The transaction is completed with Tom’s bank receiving the check and Bill’s bank crediting the $100 to Bill’s account.
Now comes the point at which things get difficult. When Tom’s bank gets the check, they examine it and discover that there is not enough money in the account to cover it; hence, they inform Bill’s bank that they will not transfer the cash. Now, Bill will have $100 taken out of his account, and an NFS notification will be attached to the transaction.
On the other hand, Tom’s bank frowns upon the fact that he wrote non-sufficient funds check, and as a result, they assess him with a $30 overdraft fee. Tom has to contribute an extra fifty dollars to his bank account, in addition to the thirty dollars that would be charged for an overdraft, and then he may legitimately send a check to Bill.