October 3, 2024

What’s an NSF Fee, and Why Did the Bank Charge You One?

If you’ve ever set up autopay, you know how the process goes. A few days before the due date, you get a bill. When that day comes, the biller withdraws the funds from your checking account and sends a confirmation.

But things unfold a little differently if your account balance isn’t big enough to cover the bill. When the business you’re paying tries to withdraw the funds, the transaction will decline. And if you’re really unlucky, the bank charges you for trying to spend money you didn’t have.

This charge appears as a separate line item on your bank statement, stating something like “NSF fee” or “Returned item fee.” But what exactly are these fees, and what can you do to avoid them?

What’s an NSF fee?

NSF stands for nonsufficient funds, a term many banks and credit unions use to describe a situation where the account holder writes a check, swipes their debit card, or schedules an automatic payment without having the money to cover it.

Some banks simply return the check or decline the transaction. But others go a step further, charging the account holder an NSF fee. This is sometimes called a returned item (RI) or insufficient funds fee — all terms that essentially say there wasn’t enough money in the account.

How much do NSF fees cost?

While the exact amount varies by state and institution, NSF fees are usually around $32. The amounts are fixed, meaning the fee stays the same if the declined transaction is for $2,000 or $2. And if you can’t bring the account balance back into the positive, you’ll get a new NSF fee every time you try to make a charge.

Writing a check that bounces could even be a double whammy — the bank charges you and the merchant hits you with an additional returned check fee.

NSF fee examples

The autopay scenario above is a common culprit for NSF fees. When you set up a recurring Automated Clearing House (ACH) payment for utility bills or monthly subscription services but forget to check your account balance before the payment hits, your balance might drop below zero. The result? A declined transaction and NSF fee.

Maybe you head to the ATM to get some cash. Your starting balance is $43, and you withdraw $40. But you forgot about the ATM fees — $3.19 from the ATM owner and $1.58 from your bank. You get the cash, but without enough money to cover the $4.77 in fees, your bank penalizes you for having insufficient funds.

A trip to the mall could also get you in trouble if your starting balance is low. When you’re swiping a debit card left and right, it’s easy to lose track of your spending. Or worse, you write a rent check, but a few days later your landlord sends an email saying the check bounced. You get an NSF fee plus a returned check fee, and the landlord says they’ll only accept money orders from here on out.

NSF fees versus overdraft fees: What’s the difference?

While they’re both bank fees that stem from a deposit account having insufficient funds, NSF fees and overdraft fees are two different types of headaches. The first happens when your bank or credit union charges you for the inconvenience of declining the transaction. But if you have overdraft protection, they cover the purchase, leaving your checking or savings account overdrawn and charging you an overdraft fee in return.

Here’s a breakdown of the differences between NSF and overdrafts:

Feature	NSF Fee	Overdraft fee
Average amount	Around $32	Around $35
When it’s charged	When the bank declines a transaction due to insufficient funds	When the bank approves a transaction despite insufficient funds
Does the transaction go through?	No	Yes
Other consequences	Returned check/NSF fee, late payment fee, account closure, damaged credit score	Potential for multiple overdraft fees if you continue to overdraw your account

Does an NSF fee show on your credit report?

An NSF fee won’t make an appearance on your credit report. But that doesn’t mean these bank fees don’t impact your creditworthiness. It just happens indirectly.

Say you bounce a check to a lender. It reports the late or missed payment to credit bureaus, causing your credit score to drop.

There’s also a chance you fail to pay the fee. If you don’t hand it over for long enough, the bank could send your account to a collection agency. And that’s when the damage really takes hold. Since collection accounts stay on your credit report for multiple years, that first NSF fee turns into a sort of financial ghost, haunting you every time you apply for a loan, credit card, or lease.

Criticism of NSF fees

According to the Consumer Financial Protection Bureau (CFPB), low-income households are three times more likely to get charged an NSF or overdraft fee than households that earn more than $175,000 a year. For people already living paycheck to paycheck, just one fee can start a vicious debt cycle, making it harder to avoid future bank fees. This means NSF fees affect low-income households disproportionately.

The CFPB has been leading the charge to eliminate so-called “junk fees” — bank fees for things like overdrafts and NSFs that have put billions in the pockets of banks and credit unions. They’re called junk fees because in most cases, declining a transaction in real time is automatic and costs the financial institution nothing. And in the case of NFS fees, the customer doesn’t even get anything in return for the money they’re charged.

How to avoid paying NSF fees

Smart budgeting is the best way to avoid NSF fees, but there are other measures you can take:

Opt into overdraft protection

With overdraft protection, your bank covers the difference between a transaction total and the amount currently in your account, leaving your account overdrawn. The upside is that the purchase won’t be declined — but the bank charges you an overdraft fee.

Link a backup account

If your checking account is low, link your savings or another account as a backup. This way, you won’t have to ask the bank to cover any portion of a transaction. You pay a fee for the transfer, but it’s typically smaller than an NSF or overdraft fee.

Balance your checkbook

If you write paper checks, don’t rely on online banking to keep your transactions straight. Since different payment methods take different lengths of time to clear, the account balances you see online might not be accurate. And if you don’t know what you’re really working with, it’s easy to try to spend more than you have.

Take a step toward financial stability with EarnIn

There’s one more great way to keep ahead of NSF fees: EarnIn, the app that lets you access your pay as you work. With EarnIn’s Cash Out tool, you can get up to $150/day and up to $750/pay period — so you have what you need to keep moving forward, whatever life sends your way.

Download EarnIn to make every day payday.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

1. EarnIn is a financial technology company, not a bank. Banking Services are provided by Evolve Bank & Trust, Member FDIC. Subject to your available earnings, Daily Max and Pay Period Max. EarnIn does not charge mandatory fees for use of its services. EarnIn does not charge interest on Cash Outs. EarnIn services may not be available in all states. Restrictions and/or third party fees may apply, for more information please visit http://EarnIn.com/TOS