Non-Sufficient Funds: What It Means And How To Avoid NSF Fees

Kevin has been writing and creating personal finance and travel content for over six years. He is the founder of the award-winning blog, Family Money Adventure, and host of the Family Money Adventure Show podcast. He has been quoted by publications l.

Kevin Payne Banking Writer

Kevin has been writing and creating personal finance and travel content for over six years. He is the founder of the award-winning blog, Family Money Adventure, and host of the Family Money Adventure Show podcast. He has been quoted by publications l.

Written By Kevin Payne Banking Writer

Kevin has been writing and creating personal finance and travel content for over six years. He is the founder of the award-winning blog, Family Money Adventure, and host of the Family Money Adventure Show podcast. He has been quoted by publications l.

Kevin Payne Banking Writer

Kevin has been writing and creating personal finance and travel content for over six years. He is the founder of the award-winning blog, Family Money Adventure, and host of the Family Money Adventure Show podcast. He has been quoted by publications l.

Banking Writer Doug Whiteman Personal Finance Editor

Doug Whiteman is an award-winning journalist with three decades of experience covering personal finance, starting when he was the Washington, D.C.-based consumer news editor and reporter for Associated Press Radio in the 1990s and early 2000s. He's p.

Doug Whiteman Personal Finance Editor

Doug Whiteman is an award-winning journalist with three decades of experience covering personal finance, starting when he was the Washington, D.C.-based consumer news editor and reporter for Associated Press Radio in the 1990s and early 2000s. He's p.

Doug Whiteman Personal Finance Editor

Doug Whiteman is an award-winning journalist with three decades of experience covering personal finance, starting when he was the Washington, D.C.-based consumer news editor and reporter for Associated Press Radio in the 1990s and early 2000s. He's p.

Doug Whiteman Personal Finance Editor

Doug Whiteman is an award-winning journalist with three decades of experience covering personal finance, starting when he was the Washington, D.C.-based consumer news editor and reporter for Associated Press Radio in the 1990s and early 2000s. He's p.

| Personal Finance Editor

Updated: Jun 22, 2021, 12:15pm

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Non-Sufficient Funds: What It Means And How To Avoid NSF Fees

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Staying on top of your finances is difficult enough without the added cost of bank fees. When your bank account balance isn’t high enough to cover a pending transaction, your bank may charge a fee for having non-sufficient funds in the account.

Paying bank fees can be a drain on your finances, but it’s often avoidable with smart money management. Below is an in-depth look at non-sufficient funds and what you can do to avoid paying costly fees.

What Are Non-Sufficient Funds?

Non-sufficient funds (NSF), sometimes called insufficient funds, describe when you don’t have enough money in your account to cover an expense. You may see a non-sufficient funds notice if you try to withdraw more money than you have in your account.

When this occurs, the bank or credit union may decline to pay or return the item unpaid and then charge an NSF fee. On top of the charge from the financial institution, you may get hit with a charge from the merchant as well.

How Do Non-Sufficient Funds Fees Work?

NSF fees are charged by banks and credit unions when a check or other payment transaction is returned unpaid because you don’t have sufficient funds to cover pending transactions.

For example, let’s say you hire a professional home painter as part of a home remodeling project. You write a check for $750 for her painting services. Eventually, she will deposit the check into her bank account. If there isn’t at least $750 in your account when she deposits the check, the bank may return the check stamped with “NSF” and deduct an NSF fee from your account.

To rectify the situation, you will need to deposit more money into your checking account and write a new check to the painter. There’s also a chance that your painter would get charged a returned check fee by her bank for depositing a bad check.

As you can see, having non-sufficient funds can lead to NSF fees and also create difficult situations for you with payees.

Below are some examples of when a bank or credit union may charge you an NSF fee.

NSF Checks

Checks that are returned unpaid due to insufficient funds are known as bounced checks, returned checks or NSF checks. Your bank may charge you a fee when a check you’ve written is unpaid due to a lack of necessary funds to cover the transaction.

This may not be the only fee you face with a returned check. The payee or merchant may also charge a separate returned check fee. If the returned check causes you to miss your payment due date, you may end up having to pay costly late fees, too. Late payments that are made 30 days past the due date may be reported to credit bureaus, which could hurt your credit.

Fraudulent Checks

Banks are required to make funds available the next business day when you deposit a check in a branch or by the second business day if you deposit by ATM or at night. It can take until the fifth business day if you deposit a check at another bank’s ATM.

If the check turns out to be fraudulent, the bank may charge you a fee and pull those funds back out of your account. If you don’t have enough funds to cover pending transactions, you could face more fees on those transactions.

Debit Card Transactions

Financial institutions typically don’t charge NSF fees for debit card transactions that get declined due to insufficient funds. Debit card transactions include online and in-person shopping and withdrawing funds from an ATM. Without enough funds, the transaction will generally get denied without further penalty.

However, if you’ve opted for overdraft protection through your bank , and the bank allows the transaction to go through, you may get charged an overdraft penalty.

The Difference Between NSF Fees and Overdraft Fees

Some banks and credit unions lump NSF fees in with overdraft fees, but there is a difference between the two charges. The primary difference is how your financial institution handles the transaction. If they decline the transaction because there aren’t funds to cover it, it’s considered an NSF fee. If the bank covers the transaction amount, it may charge an overdraft fee.

Depending on the type of transaction, you may need to opt in for overdraft protection to allow your bank to process payments when you overdraft your account. Some banks charge a fee for overdraft protection, but some online banks provide this service for free. Your bank may also allow you to link another bank account as added protection from overdrafts. If you overdraft, the bank will pull funds over from the other linked account to cover the transaction.

Banks should never charge you an NSF fee and overdraft fee for the same transaction.

How Much Are NSF Fees?

Many banks charge the same or similar amounts for NSF and overdrafts. NSF fees can range from $10 to $35 or more, depending on the bank or credit union. According to Forbes Advisor’s annual checking account fee survey, the average overdraft fee was $24.38 in 2020.

Keep in mind that some banks may charge multiple NSF fees each day for each transaction when your account has a zero balance. Bank of America, for example, charges up to four NSF or overdraft fees daily on personal checking accounts. BBVA USA charges up to six NSF fees daily.

Are NSF Fees Legal?

Yes, NSF fees are legal—your bank or credit union can charge you a fee for bounced checks. Banks and credit unions generally don’t charge NSF fees for debit card transactions or ATM withdrawals.

Keep in mind that your bank is free to set its own fee rates. But financial institutions must disclose their fees when customers open a new account, thanks to the Truth in Savings Act.

Six Ways to Avoid NSF Fees

NSF fees can be costly, especially if there’s a domino effect from missing a payment due to a returned check. Here are six ways you can avoid NSF fees.

1. Track Your Expenses

One of the best ways to avoid NSF fees is to stay on top of your expenses. You can track expenses using a monthly budgeting spreadsheet or a budgeting app that tracks the expenses of linked accounts.

2. Monitor Your Checking Account Regularly

Along with tracking expenses, make it a habit to keep an eye on your checking account balance and posted transactions. Look at which transactions have cleared and which ones are still unaccounted for. Don’t forget about pending expenses like automatic payments you’ve set up or checks you’ve written. Just because you paid someone by check doesn’t mean they will deposit it immediately, which could leave you with a lingering transaction.

3. Link Your Checking Account to a Savings Account

Some banks allow you to link another bank account, like a savings account, to your checking account. If you overdraw on your checking account, the bank moves over funds from the other account to cover any pending transactions. Check with your bank to see if this is an option.

4. Keep Extra Funds in Your Account

Add extra money to your account that you don’t touch. Having a cushion in your account can help defend you against NSF fees.

5. Set Up Bank Account Alerts

Many banks allow you to set email or mobile alerts and notifications if your bank account is low. Take advantage of this feature as a backup to tracking your account balances and transactions. You never know when something might slip through the cracks or you may forget about a payment.

6. Switch Banks

If your bank charges excessive fees when you overdraw your account, find a bank that doesn’t charge NSF fees or lets you use a linked bank account to fund those transactions. Discover Bank, for example, doesn’t charge NSF fees.

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Bottom Line

Non-sufficient funds and the fees associated with them can be an annoyance and put a strain on your financial life. Indeed, getting hit with several NSF fees can be costly—one per month at $35 is $420 per year. Fortunately, with intelligent money management, you can avoid paying fees for non-sufficient funds.