December 1, 2020

An Introduction to NSF Fees: Why Were You Charged?

If you’ve been in a similar scenario, you’re not alone: you write a rent check for $800, only for the check to bounce. You could have sworn you had at least $1,000 in your account, but alas, you were a few dollars short, so you have what is called “nonsufficient funds.”

You apologize to your landlord, but to rub salt in the wound, you now have an additional $34 charge on your account! This fee is called a nonsufficient funds fee (or NSF fee) or a “returned item fee.” What is an NSF fee for, though, and why were you charged?

The Meaning of NSF Fees

Your bank charges you an NSF fee when you attempt to make a purchase with a check, ACH payment, or debit card, but you don’t have enough funds to cover the amount. The check bounces or your card declines, and your bank, essentially, charges you for the trouble of returning your money.

Banks aren’t the only organizations that can charge you for having nonsufficient funds. If you pay a merchant or retailer with a bad check, they can hit you with a returned check fee in addition to what your bank now wants you to pay. Yeah, NSF fees aren’t fun.

According to WalletHub, NSF fees are usually between $27 and $35, depending on your state. These amounts are fixed, so they can rack up over time if you continually have nonsufficient funds. Make sure you always know how much money is in your checking account lest you incur a $35 charge from trying to make a $10 purchase with $8 in your account.

What is the Difference Between NSF Fees and Overdraft Fees?

It’s understandable if you’re confused about the difference between NSF fees and overdraft fees. Both occur when you don’t have sufficient funds to make a purchase, but different criteria trigger them.

In our earlier example, your bank charged you an NSF fee because you tried to pay rent with a check that was worth greater than the amount in your account. If you had opted-in to your bank’s overdraft protection service, though, the check would have gone through, and your landlord would have been none the wiser. Your bank would then charge you an overdraft fee, which is comparable to an NSF fee (the average overdraft fee in 2019 was $33.36).

How to Avoid Paying NSF Fees

NSF fees put you in further debt than you are already in, so how can you avoid them? Budgeting wisely and saving so that you never have nonsufficient funds in your checking account is an obvious step, but there are other measures you can take.

Use a Financial App

Certain mobile apps can give you a comprehensive view of your financial situation. Cleo, for instance, helps you with personal bookkeeping, and PocketGuard allows you to view all of your accounts in one place.

In addition, let’s say your $800 rent check bounced because you only have $700 in your account. You could use Earnin to cover the remaining $100 if your paycheck won’t be deposited until after rent is due (Earnin lets you take out up to $100 per day, up to $500 per pay period), and you pay the app back when it comes in with no mandatory fees.

Opt-In to Overdraft Protection

When you opt-in to overdraft protection, your bank will cover the difference between what you are paying and what the total transaction costs (in other words, it would loan you the $100 you don’t have to pay rent and charge you around a $34 fee). You can avoid the embarrassment or consequences of missing a bill this way, but the service has its pros and cons to consider before opting in.

Link a Backup Account

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

Balance Your Checkbook

Many people don’t bother balancing physical checkbooks anymore because banking has largely moved online. Why write down your withdrawals and deposits when all you have to do is log in to see your balance and transaction history? Different payment methods take different lengths of time to clear, though, so if you pay with paper checks now and then, your online balance might not reflect what you actually have to spend. Create a bookkeeping system where you can manage your debit, ACH, and check payments, as well as ATM withdrawals.

NSF fees are unfair and can increase your financial burden, so always be aware of how much money is in your checking account and take advantage of resources available to you to stay on top of your debts.


Photo by Oliur on Unsplash

Please note, the material collected in this blog 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.

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