What Is an NSF Fee? What You Need to Know
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- Non-sufficient funds fees may occur when you overdraw from an account and the transaction is denied.
- Some common examples that result in NSF fees include bounced checks or declined bill payments.
- While many financial institutions have eliminated NSF fees, some continue to charge these fees.
When a bank says there are non-sufficient funds, it means there isn’t enough money in your account to cover your transaction. The institution may decline the transaction and charge you a fee.
Unless you have signed up for overdraft protection or have an account with a no-overdraft fee bank, you’ll have to be mindful of insufficient funds charges. Here’s everything you need to know about NSF fees and how to avoid them.
What is a non-sufficient funds charge?
A financial institution may charge you a non-sufficient funds fee for a transaction that doesn’t get processed because you don’t have enough funds to maintain a positive account balance. This bank account fee is also sometimes referred to as a bank returned item fee. Bounced checks or declined bill payments are some of the most common examples of transactions that result in NSF fees.
A bank or credit union may charge an overdraft fee instead of a non-sufficient funds fee (also known as an NSF fee) if it processes your transaction. An overdraft fee is different from a non-sufficient funds fee because you need to be enrolled in an overdraft privilege.
How much is an NSF fee?
NSF fees may cost between $0 and $24.29, according to a 2024 Consumer Financial Protection report.
Bear in mind that you also might have to pay fees to other companies if your transaction is denied. For example, if you missed a bill payment, you might have to pay late fees because your transaction didn’t go through.
How NSF fees impact consumers
David Rothstein, senior principal at the nonprofit organization Cities for Financial Empowerment Fund and a leader of the Bank On Initiative, points out that non-sufficient funds fees can be really costly for some consumers.
“Research studies have shown that it tends to be the same consumers who are your typical serial overdrafters,” says Rothstein. “It can be really hard on a family budget and paycheck.”
For people who can’t pay overdrawn account penalties, the bank may ultimately close their bank accounts, leaving them unbanked.
Federal agencies like the CFPB and FDIC have taken action recently to help consumers and provide guidance to banks. In 2022, the FDIC began issuing supervisory guidance and encouraged banks to review overdraft practices and consider eliminating or reducing NSF fees.
According to the Consumer Financial Protection Bureau data collected in 2023, almost two-thirds of banks with more than $10 billion in assets no longer have NSF fees due to changes in overdraft policies. This change hasn’t yet been applied to all major financial institutions, though. For example, CFPB notes that 16 of 20 credit unions with over $10 billion in assets still charge insufficient funds charges.
In 2024, the CFPB has also proposed a rule to apply limits to overdraft fees. If adopted, the rule could take effect in October 2025.
How to avoid NSF fees
Here are a few tips for avoiding NSF fees.
Enroll in an overdraft protection program so your transactions can go through
You can enroll in overdraft protection when you open a bank account, or contact customer support to sign up if you would like to make changes to a current bank account.
“Having that protection program is typically a net benefit for people and better than not having it,” says Kevin Mahoney, CFP host of Financially Well.
Overdraft protection programs can vary at financial institutions. The best option will be to find a program that doesn’t charge any fees.
Some banks have a free overdraft option that lets you link your checking account to a savings account. When you overdraw your account, money will transfer from your savings account to restore your checking account balance. Other banks may charge you a fee for the transaction, but it will generally cost less than any banking overdraft charges.
Set alerts for your account balance
Another way to avoid NSF fees is to see if you can set alerts for when your account balance is low. The best mobile banking apps have features that send you text messages or emails when your balance hits a specific dollar amount.
You can also use a budgeting app. The best budgeting apps have features that monitor your bills and spending habits to avoid fees.
Find a bank that doesn’t charge NSF fees
If you’re looking for a new bank account or considering switching banks, you could look for a financial institution that doesn’t charge NSF fees. Some of the best banks have zero NSF fees, including (but not limited to) Capital One, Chase, and Regions Bank.
NSF Fees FAQs
Banks sometimes offer NSF fee refunds if you call customer support and tell them about your situation. However, this is not a guaranteed way to avoid NSF fees.
To avoid NSF fees, you can open a bank account with a financial institution that has eliminated these fees. The best banks for overdrafts do not charge any overdraft fees. If you bank with a financial institution that charges NSF fees and do not want to switch, you must regularly maintain a positive account balance or review overdraft protection options to avoid NSF fees.
NSF fees do not directly affect your credit. However, if you frequently overdraw from your account, you could miss credit card payments or loan payments, which could negatively impact your credit score. Using one of the best credit monitoring services may be worthwhile if you’re looking for ways to improve credit or track credit score fluctuations.
