What Are NSF Fees and Why Do Banks Charge Them?

Nonsufficient funds fees can add up quickly. Here's how to avoid them.

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When you write a check or swipe your debit card to make a payment without enough money in your checking account, your bank will either cover the payment for you or decline the transaction. If you have overdraft protection, the bank will temporarily cover the transaction and may charge you an overdraft fee. But if you don't, you may face a nonsufficient funds (NSF) fee. Still, it's possible to avoid NSF fees if you know how. 

What is an NSF fee?

Banks charge NSF fees when you attempt to make a payment with insufficient funds in your account. If you make a purchase for $50, but you only have $25 in your checking account, the bank will decline your transaction and hit you with an NSF fee.

How much are NSF fees?

The average NSF is $34, according to the Consumer Financial Protection Bureau. The rules may vary from bank to bank, but the fees are fixed cost and can range from $10 to nearly $40. 

Are NSF fees refundable? 

Banks aren't obligated to waive or refund NSF fees, but it doesn't hurt to ask. While each bank has its own policies, some may reverse your first offense. If you're hit with an NSF fee, call your bank and see if they are willing to work with you. 

When do banks charge NSF fees?

Banks will impose NSF charges when you don't have enough money in your account to cover a transaction. This can happen when you write a check for an amount that exceeds what's available in your checking account. The bank won't allow the check to go through, and you'll be charged an NSF fee. 

NSF fees also apply to electronic payments. If your utility bill is automatically debited from your checking account and you don't have the funds, your bank may deny the transaction and charge you an NSF fee. 

Bounced checks or rejected electronic payments can also trigger late fees or interest charges from the service provider you were attempting to pay.

How can I avoid NSF fees?

Use these tips to avoid costly NSF fees:

1. Monitor your checking account balance 

Regularly review your checking account balance. Remember that your balance may not yet reflect upcoming transactions or the check you wrote for your friend's birthday. Make a note of upcoming expenses, so you know exactly how much money you have in your account next time you swipe your card. 

2. Link your checking and savings accounts 

Some banks allow you to enroll in overdraft protection, which links your checking and savings accounts to automatically transfer money if your checking account has insufficient funds. This service may come with transfer fees, but transfer fees are usually less than NSF fees.

3. Set up low-balance alerts 

Opt to receive alerts from your bank's mobile app when you have a low balance so you know whether or not it's okay to withdraw money or make a payment. 

4. Find a bank that doesn't charge NSF fees

Some banks offer checking accounts that don't charge NSF fees, and others have eliminated them entirely. Capital One, Citibank, JPMorgan Chase, PNC, Truist, US Bank and Wells Fargo offer accounts with no NSF fees.

The bottom line

Banks make billions of dollars yearly from NSF fees. These fees average around $34 per fee, depending on the financial institution. To avoid them, you should stay on top of your spending, link your checking and savings accounts and set up low-balance alerts.