What are NSF fees?

In a nutshell

Some banks charge a nonsufficient funds (NSF) fee when you try to make a payment but don’t have enough money in your account to cover it. As a result, your bank will decline the transaction and it goes unpaid.

• NSF fees are typically around $35 and may be charged per transaction, which can add up quickly.
• Many larger banks have done away with NSF fees, saving consumers nearly $2 billion annually on a going-forward basis, according to a recent analysis by the Consumer Financial Protection Bureau (CFPB).

How nonsufficient funds (NSF) fees work

When you write a check, initiate an electronic payment or authorize a debit card transaction and you don’t have enough money in your account, your bank may decline the transaction. When this happens, the bank usually charges you an NSF fee as compensation for the inconvenience of handling the failed transaction.

Unfortunately, many banks don’t offer protection against NSF fees like they do for overdraft fees. However, some banks don’t charge these fees at all and instead will simply reject your transaction.

Reasons why you might incur an NSF fee

You can incur an NSF fee for a variety of reasons, including:

• You write a check that bounces due to insufficient funds.
• You initiate an automatic bill payment without sufficient funds in your account.
• You use a debit card for a purchase that exceeds your current available balance.

Generally, any transaction that attempts to withdraw funds from your account and exceeds your available balance can result in an NSF fee.

How much are NSF fees typically charged by banks?

NSF fees vary by institution but typically range from $25 to $40 per transaction. Some banks might charge even higher fees, especially if your account continues to have insufficient funds over multiple transactions.

What is the difference between overdraft fees and NSF fees?

NSF fees are similar to overdraft fees in that they are charges for attempting a transaction with insufficient funds. However, the key difference between the two is that overdraft fees apply when you spend more money than you have available in your account and your bank covers the shortage. NSF fees kick in when your bank cancels or declines to pay a transaction due to insufficient funds.

For example, if you have $50 in your checking account and attempt to make an online purchase of $75 with your debit card, your bank may approve the payment and charge you an overdraft fee. But if you write a check for $100 when there is only $75 in your account, you may be charged both an NSF fee if your bank declines the transaction and, potentially, an overdraft fee as well.

What to do if you are hit with an NSF charge

If you are charged an NSF fee, the first step is to determine why the transaction was rejected. To do that, check your account activity online or contact your bank.

If the payment was declined due to insufficient funds, take steps to deposit more money into your account as soon as possible.

Even if the transaction is pending, add enough money into your account to cover it (and have extra funds left over) so your balance isn’t $0. If it’s your first time getting an NSF fee or you haven’t had one in several months, try contacting your bank to ask if they’ll waive the NSF fee as a courtesy.

How to avoid NSF fees

NSF fees are inconvenient to deal with but, in many cases, they’re avoidable by taking these steps.

• Monitor your account regularly: Regular checks on your account balance can help you avoid overdrawing your account. Your bank may be able to send you daily balance alerts, or you can keep tabs via your bank’s mobile app.
• Set up alerts: Many banks, such as Quontic and CIT Bank, offer an alert service that notifies you via text or email when your account balance is low. You may be able to set a threshold (such as $100) so you’ll receive a notification when your balance falls below that amount.
• Keep a buffer: Maintain a cushion in your account to cover any unexpected transactions or fees. You can save anywhere from $100 to $300 to start in a savings account with the same financial institution. That way, you can easily transfer funds over to your checking account when your balance gets low and replenish your savings later.
• Consider overdraft protection: Some banks offer overdraft protection for a small fee. This service links your checking account to a savings account or line of credit to cover transactions when funds are insufficient.
• Switch to a no-fee bank: Consider switching to a financial institution that doesn’t charge NSF fees like CIT Bank, Axos Bank or Chime.

The AP Buyline roundup

NSF fees are a penalty for not keeping enough funds in your account to cover certain transactions, but these fees are easily avoidable. Monitor your account regularly and keep a small checking account buffer. You might consider switching to a bank that doesn't charge these fees to avoid the risk altogether.

Frequently asked questions (FAQs)

What is an NSF return fee charge?

A NSF return fee is a charge applied by banks when a check or other transaction is returned to the vendor or check recipient unpaid due to insufficient funds in your account.

When are NSF fees applied, and how are they calculated?

NSF fees are applied when a transaction is rejected due to insufficient funds in your account. They are typically a fixed amount, ranging from $20 to $40 per incident. They can be charged on a per-transaction basis, which can add up quickly if it becomes a habit.

Why is the NSF fee so high?

The NSF fee is a penalty for not maintaining enough funds in your account to cover a transaction and can also cover the cost of the bank's administrative work in processing rejected transactions. Additionally, banks may have different policies and fee structures, leading to varying amounts for NSF fees. If you feel your bank’s NSF fees are too high, consider switching to another financial institution that doesn’t charge these fees.

What bank does not have NSF fees?

Financial institutions like CIT Bank, Axos Bank and Chime don’t have NSF fees. No matter which bank you choose, it’s important to thoroughly research and understand the terms and conditions of your accounts and potential fees.