Underwriting & credit
NSF: Definition & Example
Also called: Non-sufficient funds, Insufficient funds, Returned item
What Is NSF?
NSF (non-sufficient funds) means a bank account did not have enough money to cover a payment, so the bank returned the check or electronic payment unpaid, often with a fee.
What does NSF mean?
When a payment is presented and the account balance is too low, the bank either returns it unpaid (an NSF) or pays it anyway and overdraws the account (an overdraft). Many banks charge a fee either way, though a growing number of large banks have eliminated NSF fees.
The payee is often charged too. A landlord whose rent payment bounces may pay a returned-item fee to its own bank and typically charges the tenant a returned-payment fee and possibly a late fee.
Lenders and screeners reviewing bank data often count NSF events over recent months as a sign of cash-flow stress. A single NSF means less than a repeated pattern.
NSF example
A tenant’s $1,300 rent payment is withdrawn on the first, but his account only has $900. The bank returns the payment as NSF and charges him a fee. The landlord’s system marks the payment as returned, adds a $35 returned-payment fee, and the tenant pays by certified funds.
Related terms
- OverdraftAn overdraft happens when a bank lets a transaction go through even though the account does not have enough money, leaving a negative balance that the account holder must repay, often with a fee.
- Average Daily BalanceAverage daily balance is the average amount of money in an account across every day of a period, calculated by adding each day’s ending balance and dividing by the number of days.
- Late FeeA late fee is a charge added when rent or another payment is not received by the due date or the end of any grace period stated in the lease.
- Cash-Flow UnderwritingCash-flow underwriting is evaluating an applicant using income, spending, and balance patterns from their bank account data, often alongside or instead of a traditional credit report.
- Bank Statement AnalysisBank statement analysis is reviewing a person’s or business’s bank transactions to estimate income, spot recurring expenses, check balances, and flag risks such as overdrafts or unusual deposits.
NSF FAQ
- What is the difference between NSF and overdraft?
- With NSF, the bank declines and returns the payment. With an overdraft, the bank pays it and the account goes negative. Either may carry a fee.
