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Insufficient Funds (What It Is And How It Works)

What does Insufficient Funds mean?

Why do you get this notification from your bank?

How does it work?

Keep reading as I have gathered exactly the information that you need!

Let me explain to non-sufficient funds and why it’s important!

Are you ready?

Let’s get started!

What Is Insufficient Funds

Insufficient funds, or 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”.

Bank Notification

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.
Author

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.

Overdraft Protection

If you want to avoid having to pay any penalty for your account being overdrawn, you can speak to your bank to get an overdraft protection or something similar.

In some cases, you can select the overdraft protection when you open an account or you can contact your bank to have them apply an 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” to 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 accidentially 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 an uncollected funds 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 that you have a checking account where you have $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 an 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 an 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

Unfortunatley, 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 saving 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 an 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.

Good luck!

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Now, let’s look at a summary of our findings.

Define Insufficient Funds Overview

  • The term “insufficient funds” refers to the status of an account that does not have enough “funds” to cover a particular transaction 
  • When you attempt to draw more money than you have in your account, you will get the account status notice of “insufficient funds”
  • Typically, banks will charge you a fee for trying to perform an electronic funds transfer or transaction when you do not have enough money to cover it 
  • In common lingo, you can refer to a non-sufficient funds status as “bounced check” or “NSF”
Allonge 
Automatic bill payment 
Bad check restitution program
Blank check 
Bounced checks 
Buydown funds
Certified check 
Check fraud 
Contract funds 
Electronic fund transfer 
Emergency funds vs cash cushion 
Escrow account
Excess funds
How to open a checking account
How to open a savings account 
How to write a check
NSF charge 
NSF check 
NSF Fee 
NSF meaning 
Overdraft protection 
Primary account holder
Reserve funds
Sufficient funds 
Traveler’s check 
What is a checking account
What is a saving account
Author
Business valuation 
Capital outlay 
Cash balance 
Cash is king
Debt securities
Debt service 
EBITA
Equity securities 
Financial accounting 
Financial modeling 
Financial planning 
Fixed expenses
Marketable securities 
Net working capital
Pre-funding account 
Profit vs cash flow
Retained earnings 
Retention ratio 
Revenue generation 
Settled cash 
Trust funds
Types of capital 
Variable expenses 
What is a balance sheet
What is a cash flow statement 
What is an income statement
Author
Editorial Staff
Hello Nation! I'm a lawyer by trade and an entrepreneur by spirit. I specialize in law, business, marketing, and technology (and love it!). I'm an expert SEO and content marketer where I deeply enjoy writing content in highly competitive fields. On this blog, I share my experiences, knowledge, and provide you with golden nuggets of useful information. Enjoy!

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