Non-Sufficient Funds (NSF): What It Means and How It Works

OUTLINE

Non-sufficient funds (NSF) is a term used when a bank account lacks the necessary balance to cover a transaction.

Often referred to as a "bounced cheque" in the case of paper cheques, an NSF is more commonly known in today’s world concerning electronic transactions and automatic bill payments.

What Are Non-Sufficient Funds?

When you try to withdraw money, write a cheque, or complete an electronic transaction, the bank performs an initial validation to see if your account balance can cover the transaction. If there are not enough available funds, the bank will decline the transaction and mark it with a return code of NSF.

This process prevents your account from entering an unauthorized overdraft, but it can also trigger certain fees in some circumstances.

What Are The Consequences Of An NSF?

An NSF fee is the most common consequence of an NSF due to insufficient funds. For direct debit transactions or pre-authorized debit (PAD) where funds are pulled from an account, the transaction will fail if there are not enough funds and the account holder will be subject to an NSF fee. NSF fees typically range from $45-$50 depending on the financial institution.

How To Avoid NSF Occurrences

Consumer accounts can ensure that their bank account has enough funds to cover everyday spending as well as pre-authorized payments and bill payments to ensure they aren’t subject to NSF fees.

Businesses that are initiating transactions can use pre-validation methods to ensure there are enough funds to cover the payment they are requesting. An example of this would be VoPay’s iQ11 EFT product, which can verify the available balance of customer bank accounts before the transaction takes place.