Both overdraft and NSF fees can hurt the cash flow in your bank account, especially when it’s time to pay a bill. The respective fees could stop you from going to the store to get personal items. But while the two are often grouped together, they aren’t the same. Here is how you can get charged for each and what the differences are.
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What Are Overdraft Fees?
Overdraft fees can occur when you try to transfer money out of your bank account and there isn’t enough money to cover the transaction. When an overdraft occurs, the bank covers the remainder of the transaction and may or may not charge an overdraft fee.
Overdrafts can happen either manually, like when you use your debit card, or automatically, like with a monthly bill payment. Overdraft fees do vary by bank, but according to the FDIC, the cost may be approximately $35.
Each bank has its own overdraft policies. For example, some charge significant fees each time your account is overdrawn, while others waive these fees entirely. Typically, banks will protect customers against overdraft fees, up to a certain amount – but only if they have opted into overdraft protection.
Even if you opt into overdraft protection, it doesn’t mean you won’t be charged for overdrafts. It simply means the bank will let transactions go through when you don’t have enough funds to cover a transaction. Whether the bank charges a fee for this service is for them to decide.
What Are NSF Fees?
Non-sufficient funds or NSF fees also occur when you don’t have enough money in your account to cover a transaction. However, with an NSF fee, the transaction won’t complete. This is what usually results in a situation where a check “bounces.” The average NSF fee is $34 in the U.S., according to the Consumer Financial Protection Bureau (CFPB).
How NSF Fees Work
NSF fees can occur if your bank offers overdraft protection, but you haven’t opted in. The bank won’t cover the rest of the transaction when this happens, resulting in an NSF fee. There are other situations where you might be charged an NSF fee, such as if you overdraw your account and you’ve already exceeded the bank’s overdraft protection limit.
Comparison of Overdraft Fees and NSF Fees
Overdraft fees and NSF fees are similar in many ways. The most notable difference between the two is whether the transaction goes through (overdraft) or not (NSF). The table below shows key distinctive features of each.
How Overdraft Fees and NSF Fees Compare
Overdraft Fee
NSF Fee
Average Fee
$35
$34
Transaction goes through
Yes
No
Charged until account has sufficient funds
Yes
No
Can be avoided with overdraft protection
Yes
No
How to Avoid Overdraft Fees and NSF Fees
NSF fees and especially overdraft fees can add up quickly. However, there are a few steps you can take to avoid them:
Check your balance regularly. You are more likely to overdraw your bank account if you don’t know how much you have. Check your balance regularly, such as weekly or each time you get paid.
Activate low balance alerts. You can set up a low balance alert and have your bank send you a text or email if your balance goes below a certain threshold.
Set up direct deposit. If you haven’t done so already, set up direct deposit with your employer. This will help you keep money flowing into your account.
Stick to a budget. Budgeting software and apps let you set limits on how much you’re able to spend. That will help you prevent overspending so you will (hopefully) always have the cash on hand you need.
Have an emergency fund. Having an emergency fund can be helpful in many ways. It lets you keep more cash on hand, so you won’t fully deplete your cash reserves when the unexpected happens.
Bottom Line
Both overdraft fees and NSF fees occur when you try to spend more money than you have. The biggest difference is that the transaction still goes through with an overdraft. With an NSF fee, the transaction is canceled. While banks often charge fees when this happens, some waive these fees in some situations and others have abandoned them completely. Still, regularly monitoring your finances, including your checking account balance, is good practice. You can also set up alerts to let you know when your balance falls below a certain threshold.
A financial advisor can help you work through your banking needs and put together a plan that works for your unique situation. Finding a financial advisor doesn’t have to be hard.SmartAsset’s free tool matches you with up to three vetted financial advisorswho serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you plan to open a bank account, be sure to check SmartAsset’s . Some checking accounts are better than others; for example, some have monthly fees and minimum account balances. Be sure to research the best options before opening a new checking account.
The biggest difference is that the transaction still goes through with an overdraft. With an NSF fee, the transaction is canceled. While banks often charge fees when this happens, some waive these fees in some situations and others have abandoned them completely.
An overdraft fee may be charged by a bank when it temporarily covers transactions that overdraw your account, allowing one or more to clear. An NSF fee is what some banks impose when they decline payments or the cashing of checks that would bring the account to a negative balance.
Depending on the terms of your deposit account agreement, the bank can either return the check unpaid or they can pay the check. If paying the check results in an overdraft, the bank can assess an overdraft fee against your account. Overdraft fees must be disclosed in the deposit account agreement and fee schedule.
Yes.The bank may refuse to permit overdrafts at an ATM unless you opt-in to the overdraft service. The bank must provide accounts with the same terms, conditions and features to consumers who affirmatively consent or opt […]
One of the easiest ways to avoid overdraft fees is by signing up for overdraft protection, Sterling says. This involves linking another account at your bank – usually a savings account – to the checking account. If you overdraw, funds are pulled from the linked account to cover the difference.
In general, for debit card transactions at ATMs or at merchants, consumers must opt-in, or agree up front, that the bank can charge you an overdraft fee for any debit card transaction that overdraws the account. If you don't opt-in, you can't be charged a fee.
Nearly two-thirds of banks with over $10 billion in assets have eliminated NSF fees. Nearly three-fourths of the banks that earned the most in overdraft/NSF fee revenue in 2021, including 27 of the top 30 earners, have eliminated NSF fees.
When you write a check and there's not enough funds in your account when it's presented, this is considered non-sufficient funds (NSF). When a check is returned due to NSF, it's returned to the payee that deposited the check, at their bank. This allows them to redeposit the check at a later time, if available.
When payment cannot be completed it is often considered as “bounced." If a bank receives a check written on an account with insufficient funds, the bank can refuse payment and charge the account holder an NSF fee.
Generally, a bank may attempt to deposit the check two or three times when there are insufficient funds in your account. However, there are no laws that determine how many times a check may be resubmitted, and there is no guarantee that the check will be resubmitted at all.
Your bank might offer you an overdraft line of credit that you can draw against. Say you have a checking account and the bank grants you a $1,000 overdraft limit. That means you can spend all the money in your account, plus up to $1,000 more before the bank will block any further transactions.
Debit Card Overdraft ServiceFootnote 7 7 allows the Bank to authorize, at its discretion, ATM and everyday (one-time) debit card transactions into overdraft if there isn't enough available money in your checking account (or in accounts linked for overdraft protection), and an overdraft feeFootnote 6 6 will apply to any ...
Your bank may waive or refund an NSF charge from your account if you request it be removed. There's no guarantee the charge will be reversed, but it doesn't hurt to ask. Typically, banks are more likely to refund first occurrence NSF fees for customers who otherwise keep their accounts in good standing.
Your bank may close your account and send you to collections if you're always in overdraft and/or don't bring your account up to date. An overdraft occurs when your account falls below zero. Your bank will let your account become negative if you have overdraft protection but you may face fees.
You may be charged an overdraft fee if you don't have enough money in your account to cover all of your transactions, including making ATM withdrawals, using your debit card to make a purchase, making automatic bill payments or writing checks.
However, banks and credit unions are allowed to charge you overdraft fees when the bank or credit union pays a check or certain recurring electronic payments that would have overdrawn your account, even if you did not opt in. Some banks may also allow you to opt-out of overdrafts for checks and other types of payments.
Overdraft Fees. Non-sufficient funds and overdrafts are two distinct bank transactions. Both relate to insufficient funds and can trigger fees. Banks charge NSF fees when they return presented payments without payment, like a check, and overdraft fees when they accept and pay the checks that overdraw checking accounts.
Are NSF fees refundable? Banks don't have to waive or refund NSF fees. But it doesn't hurt to ask if your financial institution will refund an NSF fee — the bank may be willing to work with you. Some institutions even have programs in place that waive fees if you meet certain conditions.
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