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Overdraft Fees vs. Nonsufficient Funds Fees: What’s the Difference?

The two fees sound synonymous, but they differ. Here’s how.

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Overdraft fees and nonsufficient funds fees are terms often mistakenly used interchangeably in regard to an account that doesn’t have enough money to cover a transaction. In fact, they’re two types of fees, and it’s important to understand how they differ. Moreover, you should understand how these fees can be charged by your bank or credit union and how best to avoid them.

Banks and credit unions can’t charge both an overdraft and a nonsufficient, or NSF, fee for the same transaction. However, just incurring one of these fees can be costly. 

What is an overdraft fee?

Banks and credit unions charge overdraft fees when you don’t have enough money in an account to cover a transaction. Instead of declining the transaction, the bank covers the payment and charges you an overdraft fee. If, for example, you purchase an item for $50 and have only $25 in your checking account, the bank will approve the transaction and charge you an overdraft fee plus the amount owed. 

This process essentially provides you with a high-interest loan that must be repaid to return your account to good standing. Each additional transaction processed while your account is overdrawn can add additional overdraft fees to your outstanding balance. These fees can balloon quickly so it’s best to monitor your spending on a regular basis and consider opting into overdraft protection to avoid the additional expense.

How much do overdraft fees cost?

According to the Federal Deposit Insurance Corporation, the average overdraft fee is $35, but fees can range from $10 to $40, depending on the bank. 

What is an NSF fee?

Banks charge a nonsufficient funds fee when a payment can’t be processed because you don’t have enough money in your checking or money market account. In this case, the bank or credit union doesn’t approve the transaction. An NSF fee may result from a bounced check or a denied electronic bill payment. 

Let’s say, for example, that your utility bill automatically pulls from your checking account each month, but on the due date, you don’t have enough to cover the bill. Your payment will likely be denied, and your bank could charge you an NSF fee. Additionally, your utility company may charge you a returned check fee and/or late payment fee.

How much do NSF fees cost?

The average NSF fee is $34, according to the Consumer Financial Protection Bureau. But like overdraft fees, NSF fees can ranges from $10 to $40.

What is overdraft protection?

Overdraft protection is an option offered by banks and credit unions to avoid having a charge rejected if your checking account has insufficient funds. If you enroll in overdraft protection, your bank will automatically cover your transaction by moving funds from a linked savings account or line of credit to cover the transaction. Your bank may charge a transfer fee for this, but this fee is usually much less than an overdraft fee. Many online banks offer free overdraft protection, but traditional banks charge roughly $10 to $12.50 per transfer. 

What’s the difference between an overdraft fee and an NSF fee?

Your bank or credit union may charge an overdraft fee to your account if you don’t have enough funds for a transaction and, in turn, it covers the charge on your behalf. An NSF fee is charged when you overdraw your account and the bank declines your transaction.

For example, let’s say your checking account has a balance of $10 on the day an electronic payment for the gas bill of $75 is set to be processed. You also decide to purchase a pair of $30 sunglasses on your way home. Both transactions may be declined, your bank may also charge you an NSF fee of $34 for both transactions, and the utility company will likely tack on an additional fee because the payment was declined. 

If the utility company’s returned check fee is $25, you could end up owing $93 in penalties; you’ll still have to cover the cost of your gas bill plus any applicable late fees and travel back home without the protection your eyes desperately need. Overdrawing your account can be an expensive and frustrating experience.

How to avoid overdraft and NSF fees

There are some steps you can take to avoid these fees:

1. Sign up for overdraft protection 

This protection can help you avoid overdraft fees by moving money from another account, such as a savings or money market account, to cover a charge. This service isn’t always free, but may save you more than incurring one or more overdraft fees.

2. Enroll in low-balance alerts

Some banks offer low-balance alerts to help you know when your account balance drops below a certain threshold. That can help you preempt an NSF or overdraft fee.

3. Choose a bank without overdraft fees

Avoid these fees altogether by finding a bank without these fees. Some banks are shifting away from overdraft and NSF fees altogether, including Capital One and CitibankBank of America eliminated NSF fees and recently reduced its overdraft fee to $10.

4. Stay on top of your balance 

Invest the time and effort to keep track of your balance, deposits, transactions, withdrawals and automatic payments by monitoring your account on a regular basis. Stay aware of any pending or upcoming transactions that may not automatically be reflected on your account’s balance.

5. Ask the bank to waive the fee

Some banks and credit unions may refund an overdraft or NSF fee if you simply ask for it, especially if your bank account is in good standing and the occurrence is rare. It never hurts to ask.

The bottom line

If you’re not careful, overdraft and NSF fees can add up quickly. Be mindful of your finances, set up low-balance alerts or enroll in overdraft protection to help avoid these fees. You might also consider switching to a bank without overdraft or NSF fees.

Correction: An earlier version of this article was assisted by an AI engine and it mislabled the steps to avoid fees and misstated Bank of America’s fee policy. Those points were all corrected. This version has been substantially updated by a staff writer.  

Toni Husbands is a staff writer with CNET Money who enjoys exploring topics that promote financial wellness. She began writing about personal finance to document her experience paying off $107,000 of debt, which is detailed in her book, The Great Debt Dump. Previously, she contributed as a freelance writer for websites, including, Centsai and Wisebread. She was also a regular contributor to Business AM TV, and her work has been featured on Yahoo News. Being a part-time real estate investor and amateur gardener also brings her joy.
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