What does Insufficient Funds mean?
Why do you get this notification from your bank?
How does it work?
In this article, I will break down the notion of Insufficient Funds so you know all there is to know about it! This article is updated in 2022.
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Table of Contents
What Does Insufficient Funds Mean
Insufficient funds, sometimes called non-sufficient funds, is a phrase used to refer to a transaction that cannot be completed on a checking account (or any other type of account) where the account holder does not have enough money to complete the transaction.
In other words, if you have $1,000 in your checking account and you are trying to complete a transaction for $1,500, you will get a notice from your bank saying that you have “insufficient funds”.
Where you are going to see the phrase insufficient funds is generally when you are doing your day-to-day banking or performing a transaction through an institution where you have funds in your checking account or another account.
When you are trying to spend more than you have in your bank account, the bank will issue an insufficient funds notice to advise you that the transaction cannot go through as you don’t have enough money to cover the transaction value.
The objective is for the bank to protect itself by not having to disburse more money than you have and to protect you in case someone steals your debit card or identity and goes on a spending spree.
Now, let’s look at the definition of “insufficient funds”.
Insufficient Fund Transactions
There are many types of transactions that may lead to a non-sufficient message.
Here are the most common reasons why you may end up with an insufficient fund note from your bank:
- You write a check to someone or company when your account does not have enough cash balance to cover your check
- You perform a wire transfer (or electronic fund transfer) for more money available in your account
- You do not have enough money for your automatic payments to go through
- You try to withdraw money from an ATM machine using your debit card when the amount requested exceeds what you have in your account
- You try to transfer money online from your account to another account
Insufficient Funds Definition
According to Investopedia, insufficient funds is defined as follows:
The term non-sufficient funds (NSF), or insufficient funds, refers to the status of a checking account that does not have enough money to cover transactions.
In other words, to say that there’s insufficient funds, it means:
- A person or company
- Is attempting to perform a transaction
- Where there is not enough cash or money available
- For the bank to perform the transfer of funds
Insufficient Funds Fee
What are the penalties for insufficient funds?
Typically, banks and financial institutions will charge an account holder a certain amount of fees or penalties should the person attempt to do a transaction where there is not enough money in the account.
Such fees are called “insufficient funds charge”, “insufficient funds fee” or “NSF fee”.
In the United States, you can get charged anywhere between $20 to $40 when you write insufficient funds check or do an insufficient funds transaction.
Avoiding Non-Sufficient Fund Fees
To avoid getting charged, you can speak to your bank to see what options you may have to prevent a transaction from failing due to non-sufficient funds.
Some options are:
- Getting an overdraft protection
- Linking a savings account to the account
- Linking a credit card to the account
- Set up an alert where you are notified that your balance has reached a certain level
You can also keep track of your bank account balance by regularly monitoring your transactions.
If you want to avoid having to pay any penalty for your account is overdrawn, you can speak to your bank to get overdraft protection or something similar.
In some cases, you can select overdraft protection when you open an account or you can contact your bank to have them apply overdraft protection to your account.
When you have the protection against overdrafts on your account, the bank will actually advance the funds you are technically missing to honor your check or allow the transaction to go through.
Then, depending on the plan you have, the bank may either charge you an overdraft fee or interest on the sums it “borrows” from you.
If you have an overdraft line of credit, then when your account goes into overdraft, the money is taken from the line of credit linked to your account.
Insufficient Funds Legal Consequences
There are instances when a person can end up in serious legal trouble for performing insufficient fund transactions.
When a person makes a mistake or accidentally performs a transaction without having insufficient funds, the typical consequence is the bank charging a non-sufficient fund fee.
However, if a person attempts to take advantage of the banking system by deliberately performing transactions while knowing there are not enough funds in the account, the person may end up being charged with a crime (typically fraud or another type of economic crime).
Uncollected Funds vs Insufficient Funds
What is the difference between uncollected funds vs insufficient funds?
When you are dealing with insufficient funds, it means that you are trying to make a debit transaction, purchase, or transfer for more than you have available in your account.
However, uncollected funds refer to when you have deposited a check in your account and the funds have not yet been cleared (or available) to you for spending.
When you deposit a check, it may take approximately three to five business days for the check to clear.
Even though your credit is pending, if you try to spend the money that is yet to be cleared, you will get uncollected funds to notice.
Insufficient Funds Example
A classic example where you may come across the phrase insufficient is when you are using your checking account to pay for something.
Let’s say you have a checking account with $500.
Imagine that you go to a store and make a purchase by writing a cheque for $750.
When the seller tries to cash your cheque, your financial institution will refuse to honor your check as you do not have enough money in your checking account to cover the amount required by the check.
In this case, the seller will receive insufficient funds notice indicating that the check could not be cashed (we refer to this in common jargon as “the check has bounced”).
On your side, you will also get a notice from your bank indicating that your check could not be honored and you will get an insufficient funds charge or penalty.
Frequently Asked Questions
Let’s look at some frequently asked questions relating to “insufficient” funds.
Can I Use My Debit Card As Credit With Insufficient Funds
If your checking account is linked to your credit card or a line of credit, then you can use your debit card in the same way that you would use your credit card when you don’t have enough funds in your account.
However, you need to see the terms and conditions of the type of overdraft protection that you have.
If you have overdraft protection, it’s essentially only that and technically not designed to be used like a credit card.
I Got A Notice of Insufficent Funds But I Have Money
There are instances when you rightfully can assume that you have enough money to spend but you get a notice for not having sufficient funds.
Why is that?
This is likely to happen when you’ve deposited a cheque or credited your account but where the cash transaction has not yet settled.
For example, imagine you have $100 in your account and you deposit a check for $200, you assume that you have $300 (and so you can spend up to that much).
However, if your check takes three business days to settle, then although your account is showing $300, you only have your original balance as “available” funds and the remaining is pending clearance by the bank.
Can You Withdraw Money From ATM With Insufficient Funds
Unfortunately, you can’t!
If you do not have enough money in your account, you will not be able to withdraw any money from your bank account.
If you have an emergency and need cash, you may think of doing a cash advance on your credit card or taking money from your line of credit.
Without access to any credit, your only option will be to find someone to lend you the money that you need.
Will A Check Go Through With Insufficient Funds
Technically, a check will not go through when you do not have enough money in your account to cover your check.
However, if your checking account is linked to a savings account, line of credit, or has some form of overdraft protection, then your check will go through when you don’t have a positive balance in your account.
After the check goes through, your account balance will be negative and you will owe your bank the amount it advanced to cover your check.
Insufficient Funds Meaning Takeaways
So there you have it folks!
What are insufficient funds?
Will a check clear with insufficient funds?
In a nutshell, when you are attempting to use your checking account where you do not have enough cash balance to cover the transaction, the transaction will not go through due to insufficient funds.
You’ll see this banking term on your bank statements or receipts you may get at home.
In many cases, when a transaction is performed on an account without enough funds, the bank will charge you an insufficient funds penalty (unless you have overdraft protection).
Here are certain things you can do to avoid getting an insufficient fund notification from your bank:
- Keep track of your expenses
- Regularly look at your account transactions
- Link your account to a savings account
- Get overdraft protection or overdraft line of credit
- Set up bank alerts
- Make sure you deposit enough cash to cover your automatic payments
It’s important that you keep enough money in your account to cover your transactions, otherwise, you will end up with an irritating insufficient funds notification from your bank and get hit with a charge!
I hope I was able to answer your questions related to funds being insufficient in your account when performing a transaction and its consequences.
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Define Insufficient Funds Overview
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