What is a Returned Item Fee and Why Was I Charged?

Have you recently checked your online bank statement, only to find an unexpected 'Non-sufficient Funds Fee'? Don't worry—it's an all too common scenario, and you're certainly not alone.

You've probably fallen out of the habit of balancing your checkbook because you trust your online banking statement to indicate how much money is in your account. After all, why do the math when the number is so accessible, right?

However, one thing you should take note of is that this balance may not always reflect recent purchases or pending transactions. That's why you need to monitor your account balances to ensure you don't get caught off-guard.

So what exactly is this Non-sufficient Fund (NSF) fee?
In this article, we will delve into the meaning of NSF fees, also known as returned item fees, and explore the reasons why you might have been charged, so you can manage your finances better.

A returned item fee/NSF fee is a charge imposed when you lack enough funds in your checking account to cover a transaction—and you don't have overdraft protection. It may also be referred to as a return check fee or returned payment fee.

The Consumer Financial Protection Bureau notes that NSF fees average $34, though the maximum amount allowed varies by state.

Here's a good example to help you understand the NSF fee meaning better.
You might have tried to write a rent check with less money in your account than you believed. Since you didn't have overdraft protection, when your landlord attempted to deposit the check, it bounced. Now you're late on rent, you have a deposited item returned, and there's a charge on your bank account that reads 'NSF: Returned Item Fee.'

Now, you might wonder; why do these fees exist? You're not wrong to notice that they perpetuate the cycle of debt. However, the answer lies within the term "returned item fee" itself—your bank is making you pay for the inconvenience of returning the declined check.

The purpose of NSF fees is to cover the costs incurred by the bank for handling unsuccessful transactions and can vary in amount depending on your bank's policies.

Now that you’ve understood the NSF fee meaning, you need to know how to avoid this charge in the future. It will require careful financial management and proactive steps to prevent transactions from being returned, but it’ll be worth it.

Check out the following strategies to help you steer clear of these fees:

Maybe one reason you had less money in your account than you thought you did is because your paycheck was delayed.

You depend on punctual deposits to pay your bills on time (or your bills are due before payday), but you're afraid to ask your employer for an advance too often.

In this case, you can use an app like EarnIn to access a portion of your pay when you want it and make payments. Provided you transfer enough cash to cover a particular transaction, you may avoid an NSF fee.

Link your checking account to a backup source of money, such as a savings account. You will likely have to pay a fee to pull from it, but this amount will be less than an overdraft line of credit fee or an NSF fee.

It's clear that overdraft protection may spare you from NSF returned item fees. However, be aware that there are caveats to this service.

If you frequently overdraw your account, your bank could report you to a consumer credit reporting agency like ChexSystems. This could negatively impact your ability to open a new checking account in the future.

Link your account to an app with low-balance alerts or use your bank's native feature. If your funds drop below a certain level, an alert will notify you that you either need to replenish your account or avoid spending until further notice.

Besides making a significant amount of money, your next-best option to avoid returned item fees is to budget carefully.

If you're certain about the amount of money you spend each month, it will be easier to monitor how much goes out of your account. This way, if something unexpected comes up that requires immediate payment, you'll be prepared and avoid an NSF fee.

Make sure you balance your accounts and checkbook so you know how much money you have at any given time. This will help ensure you're not spending more than what is available in your account.

Your online banking statement and mobile apps can help, but it's always good to be thorough before you trust the figures they display too quickly.

Think of your account balance as a safety net.

Instead of spending every last dollar in your account, leave a cushion of funds to cover unexpected expenses. This will help make sure your checking account has enough funds so that you won't bounce checks or incur NSF fees.

Now, when it comes to getting your NSF returned item fee waived or refunded, it's not always a sure thing. It all depends on your bank's policies and your account history.

However, it never hurts to call your bank's customer service center and ask. Though the bank may not erase the charge entirely, it's still worth a shot.
If you have a good track record and promptly contact them to discuss the situation, they may consider waiving or reducing the fee as a gesture of goodwill.

However, it's always best to proactively manage your finances to avoid cases or returned deposited items and consequently NSF fees.

Let's now talk about the difference between NSF returned item fees and overdraft fees. Though they may appear similar at first glance, there are clear distinctions between the two.

As we explained earlier, NSF fees or returned item fees are charged when a transaction is attempted without sufficient funds in the account, resulting in the payment being returned.

On the other hand, overdraft fees are incurred when a transaction is allowed to proceed—even if it exceeds the available balance—usually due to the presence of overdraft protection.

Now that's another important financial term you need to understand—overdraft protection.

This is a service you can opt into that allows you to overdraw your account to complete transactions when you have insufficient funds. The bank provides this service through an overdraft line of credit or by transferring funds from a savings account linked to your checking account.

Therefore, if you had overdraft protection in our previous example, your bank would loan you the difference or pull it from your savings account. Your rent check would still go through, and your landlord would be none the wiser about your financial situation. The bank would then charge you a comparable overdraft fee for using this service.

It's evident that avoiding NSF fees/returned item fees and maintaining financial stability is crucial for your peace of mind. The good news is you have a reliable partner like EarnIn to help you with this.

With EarnIn's Earned Wage Access (EWA) tool, you can transfer up to $750 of your earned wages per paycheck, even before your payday—with no hidden fees or interest. EarnIn will then debit your bank account automatically for the amount when your paycheck arrives. Say goodbye to waiting for your paycheck to cover unexpected expenses or bills that have come due.

But that's not all! EarnIn's Balance Shield feature provides an added layer of protection to help you steer clear of costly fees. It monitors your connected checking account and alerts you when your account balance falls below your predetermined level. You can also activate Balance Shield Transfers, which will automatically transfer up to $100 of your earned money to your account when your balance goes below $100.

Take advantage of EarnIn's innovative tools, and make sure you have enough funds to cover each transaction you make so as not to incur NSF fees or returned item fees.

Give yourself the peace of mind you deserve by downloading the EarnIn app today, and take charge of your financial future.