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What Is an NSF Fee? Here’s Everything You Need to Know

If you overdraw your account and don’t have overdraft protection, your financial institution may charge you an NSF fee.

Chris Scott

Contributing Writer at Tally

June 14, 2022

If you use a bank or credit union, one thing that you need to be aware of is a non-sufficient funds fee, otherwise known as an NSF fee. So what is an NSF fee? It occurs when you overdraw your account and don’t have overdraft protection. Although the actual amount charged varies between financial institutions, these fees can be steep.

In this article, we’ll cover everything you need to know about NSF fees. Specifically, we’ll go over what they are, how they’re different from overdraft fees, when you’d be charged NSF fees and how to avoid them.

What is an NSF fee?

Your financial institution probably charges an NSF fee, or a non-sufficient funds fee when you don’t have enough funds in your account to cover a transaction and don’t have overdraft protection.

Overdraft protection is a service offered by many financial institutions. If you happen to overdraw your account, your bank or credit union will cover the transaction and charge you a small overdraft fee. 

NSF fees are charged when you don’t have overdraft protection; the purchase may be rejected or returned in addition to the fee. In the section below, we’ll dive deeper into the differences between NSF fees and overdraft fees.

According to the Federal Deposit Insurance Corporation (FDIC), “Banks are not required to obtain your opt-in for Non-Sufficient Fund (NSF) fees.” This means that your financial institution may automatically charge you if you make a transaction without sufficient funds in your account.

Additionally, there are no limits as to the amount your financial institution can charge you. The responsibility is on you, the account holder, to properly manage your bank account, ensure you have sufficient funds and know the structure of your bank fees.

Are NSF fees the same as overdraft fees?

As mentioned previously, NSF fees aren’t the same as overdraft fees. When you open an account with a bank or credit union — either a checking account or savings account — you’ll likely have the option of overdraft protection. Your financial institution may charge you a small fee to do so.

If you enroll in overdraft protection and you overdraw your account, your bank covers the transaction and will then charge you an overdraft fee as a penalty for overdrawing the account.

If you don't enroll in overdraft protection and you overdraw your account, your financial institution won’t cover the transaction. In this case, your bank or credit union would charge NSF fees. Although it can vary between financial institutions, there’s a good chance that your NSF fee is higher than your overdraft fee.

When and why would you be charged NSF fees?

Your bank would charge you NSF fees if you overdraw an account without overdraft protection. NSF fees can occur when you:

  • Attempt to make a debit card transaction

  • Write a bad check (often referred to as a bounced check)

  • Transfer money from one account to another, perhaps when online banking

  • Make an ATM withdrawal

  • Make an electronic payment through the Automated Clearing House (ACH) network

  • Use auto bill pay, such as automatically paying your credit card bill from your account

Let’s say, for instance, that you have a checking account balance of $400. A while back, you wrote a check for $100 to a friend. Your friend misplaced the check and you forgot about it.

Later, your friend finds the check and deposits it. However, you’ve just paid your bills and your current balance is $50. When your friend’s bank goes to withdraw funds from your bank, you’ll have insufficient funds.

The check will bounce, and you’ll be notified of the returned check. Your bank won’t cover the transaction because you didn’t have overdraft protection in place, which means you’ll be charged an NSF fee. Additionally, in this scenario, your friend may also incur a bank fee.


How can you avoid NSF fees?

Fortunately, there are some things that you can do to protect yourself from NSF fees.

1. Find out your fee structure

To avoid NSF fees, you first need to understand whether your bank charges them and how much. Ask about your current fee structure. Not only will you learn more about the potential NSF fees and overdraft fees, but you may discover that there are other hidden fees as well.

2. Enroll in overdraft protection

If your bank offers overdraft protection, you may want to consider enrolling. As described above, overdraft protection typically allows a transaction to be completed, even if you have insufficient funds. Your bank will charge you an overdraft fee, but this fee could be less than an NSF fee.

It’s worth noting that your financial institution may require you to have a linked account to enroll in overdraft protection. For instance, a savings account with cash reserves might be required to cover a checking account transaction that results in an overdraft. In this scenario, money would be transferred automatically from your savings account to your checking account to cover the cost of the transaction.

3. Set up low-balance alerts

A low-balance alert is a notification that informs you when your account balance falls below a certain threshold. If you receive one of these notifications, you’ll want to deposit or transfer money into the account immediately so that you don’t accidentally overdraw the account.

4. Keep track of your finances

Avoiding NSF fees also requires good financial management. You should regularly check that you have enough money in your account. You can also set up and stick to a budget to ensure you are living within your means. Lastly, be sure to reconcile your checking account so that you know how much money in your account is actually available to spend.

5. Ask for a refund

If worse comes to worst, you can always ask for a reimbursement of NSF or overdraft fees. Your financial institution may be willing to make an exception and reimburse the fee, especially if you have a strong financial history and this is the first time that you made an error.

Understanding NSF fees can help you manage your money

Understanding NSF fees is just one component of your personal finances. If you’re looking for more financial knowledge, be sure to subscribe to Tally’s† newsletter. It’s delivered directly to your inbox, providing you with the latest news, information and money management tips so that you can reach your financial goals.

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