The following is a situation many of us have found ourselves in over time. You write a check to someone or for something and are sure you have enough cash in your checking account to cover it. The person or business you wrote the check to does not cash it immediately. In fact, they don’t cash the check for weeks. You completely forget about the check and continue using your checking account as normal. However, your checking account balance is now at a level that will not cover the amount of the check. The person or business you wrote the check to finally gets around to cashing it and because of the change in your balance you get a notification from your bank that you’ve been charged a non-sufficient funds fee (“NSF fee”). This is a frustrating situation that many consumers frequently find themselves in. This article dives into what NSF fees are, when they may apply and what you can do to avoid them.

What are NSF Fees?

As mentioned earlier, NSF fees are fees that banks charge consumers when their accounts do not have sufficient funds. NSF stands for non-sufficient funds, but is often also referred to as insufficient funds. This typically comes into play for transactional accounts such as checking accounts which is what we typically will use for paying bills and receiving deposits and checks. When banks refer to non-sufficient funds, they are describing a situation where an account does not have enough money to cover an incoming request for funds. For example, if you have $1,000 of pending expenses and only $900 in your account, most banks will conclude that the account has non-sufficient funds. In this situation, the bank may charge you an NSF fee as a result. However, this isn’t always the outcome and depends on what the bank chooses to do.

NSF Fees vs. Overdraft Fees

If the bank does not allow your account to be overdrawn (meaning for your checking account balance to go into the negative) then you will be charged an NSF fee. If the bank does allow your account to be overdrawn, then you will likely be charged an overdraft fee. Again, these fees usually only apply to checking accounts and in many cases an NSF fee charge is the same amount as an overdraft fee. You will notice in the fine print of your checking account details that banks have some discretion over how they handle these situations. If your bank account is deemed to have insufficient funds, what happens next isn’t always automatic. The bank will look at the situation and decide how to handle it.

How Chase Bank Handles NSF and Overdraft Situations and Fees

Using Chase Bank‘s policy as an example, the current Chase Checking Account allows for the authorizing of some payments when your account has non-sufficient funds. Specifically, Chase Bank can authorize under its Standard Overdraft Practices, recurring debit card transactions such as gym memberships even when the account does not have the balance to cover it. If this happens the account is not charged an NSF fee but an overdraft fee of $34 per item that the bank pays. This only happens if your account is overdrawn by more than $50. 

How Bank of America Handles NSF and Overdraft Situations and Fees

Similarly, Bank of America also has an overdraft and NSF fee. They work the same way. Your account is overdrawn if you have pending transactions that exceeds your available account balance and the bank permits the transactions. As of this writing Bank of America also does not charge overdraft fees on recurring debit card transactions. The bank also does not charge a fee for an item that is $1.00 or less. The standard overdraft item fee is $35.00. On the other hand, Bank of America can choose to decline the transactions. This means that the payments you authorized will not be paid. In this situation, Bank of America’s will charge you an NSF fee of $35.00. They will not charge the $35.00 if its a declined ATM or debit card transaction. Note that if a pending charge is not paid and returned, the vendor could also end up charging you.

An NSF Fee Can Lead To More Fees and Charges

As mentioned before, a bounced check is a common way that people get charged an NSF fee. These are also referred to as “NSF checks”, and happen often due to the fact that processing checks still sometimes takes several days. In addition to this, with a check the person you are paying might not cash it immediately. Interestingly, NSF fees aren’t the only fees you may have to pay when you bounce a check. The person or business you made the check out to, might also charge a fee for giving them an invalid check. In addition, you could end up paying a late fee if the returning of the check takes so much time that it causes your payment to be late.

Recipients of Checks Can Also Be Charged an NSF Fee

Beyond bounced checks, NSF fees may also apply if you cash a fraudulent check. When you deposit a check, the banks are required to release the funds promised by that check. Either by the next business day when depositing in a branch or sometimes immediately if you’re depositing the check via an ATM. The speed with which the funds from the check you’re depositing will be released also depends on whether the check was issued by your bank or a different bank. The point is that the bank has to release the funds fairly quickly. If the check is later found to be fraudulent, your bank will remove the related funds from your account. It may then charge NSF fees for the inconvenience of having to do so.

Typical NSF Fees of 10 Major Banks

chart comparing nsf fees of largest banksThere is some variation in what banks charge for NSF Fees. We found a wide range over a bigger sample, but of between $10 and $36. According to a 2021 Forbes Advisor article, the average is $24.93. In the chart above we looked at 10 of the largest banks in the United States and found that on average they charged $34.00 with a range of $25 to $36. Many of these banks also provide services such as overdraft protection than can help account holders avoid paying NSF fees and overdraft fees.

Are NSF Fees Legal?

Yes they are. Banks and credit unions have a legal right to charge NSF fees whenever you attempt to pay for items and do not have funds in the account to cover it. What’s more, each institution has the freedom to set its own fees. Therefore you may find yourself paying more than the average stated above, it is really up to your bank. That said, banks do have to be upfront and transparent about these charges with their customers. As part of the Truth in Savings Act, your bank or credit union has to make specific disclosures about their overdraft and NSF fees to consumers when marketing their accounts.

How Can You Avoid NSF Fees?

There are several approaches you can take to avoid NSF fees. Some require additional financial responsibility on your part, while others just require you to work together with your bank or credit union.

1. Be Proactive and Contact Your Bank or Credit Union

You may find that your bank is willing to waive your NSF fees, especially if you haven’t incurred any before the offending transaction. Some banks even have special programs that allow you to waive your fees if you meet a set of criteria. Even if the bank isn’t willing to waive the fees entirely, it may be willing to work with you on reducing the fees or creating a payment plan for them. It’s a good idea to be proactive if you realize you’re about to incur NSF fees.

2. Contact The Merchant(s) You Transacted With

As noted, banks may charge multiple NSF fees for a single failed purchase. To prevent this from happening, contact the merchants you transacted with as soon as you receive your first NSF notice and ask them not to retry the transaction. Every attempt they make at cashing your check or processing the transaction could lead to additional NSF fees.

3. Always Maintain a Buffer

Consider setting an amount of money that should always be in your account. This amount can act as a buffer as well as an early warning system to ensure that you don’t overspend. For example, if you say that you will always have $200 in your account, you know that there’s an issue to look into if your account balance falls below this level. It’s your first line of defense.

4. Consolidate Your Accounts

If you have multiple checking accounts it’s a good idea to consider consolidating them. This will obviously increase the balance you have. More importantly it reduces the number of accounts you have to keep track of. The combination of fewer accounts and a higher balance should lower the odds of you have an account overdrawn. This strategy can help you avoid NSF fees.

5. Set Up an Account Alert

Many banks allow you to set up text or email alerts that notify you when your funds are low. Use this feature to help you keep track of your account balances so that you can get ahead of potential overdrawn situations.

Final Comments: Be Wary of NSF Fees

NSF fees are expensive and can easily add up, especially if your bank or credit union has a policy of charging multiple fees per day. While most bank accounts are offered for free, these types of fees can lead to the account being quite costly. Checking your account balances often and setting up alerts is a good way to avoid paying a lot of NSF fees.