Insufficient Funds, NSF Fees, and How to Manage Them

Updated February 2, 2022

Most people have heard of an overdraft. However, there’s another, similar penalty that checking account holders should beware of — the non-sufficient funds (NSF) fee. These are sometimes known as insufficient funds fees.

When account holders don’t have enough money in their account to complete a transaction, they’ll incur an overdraft or NSF fee. Although the two look quite similar, there are important differences between them.

What Are Non-Sufficient Funds?

When there is not enough money in your account to cover a transaction, banks and credit unions refer to this as non-sufficient funds (NSF), or insufficient funds. A financial institution may also say you have non-sufficient funds if a check presented against your account bounces. This means that it is returned unpaid.

In situations when you have insufficient funds, the bank, credit union, or other financial institution will charge you an NSF fee. This is to penalize you for attempting to make a purchase without enough money in your account.

Your financial institution may refer to NSF fees as non-sufficient funds fees, returned item fees, or insufficient funds fees. Specifically, when you are dealing with a bounced check, the fee may be referred to as a returned check fee.

Checks can be returned whether you submit them to a business or to an individual. When you get an NSF fee, the bank or credit union will not cover your transaction, unlike with overdraft fees. For debit card transactions, your card will be declined. When paying by check, the returned check will trigger a fee for both you and the person who attempted to deposit it.

How Much Does an NSF Fee Cost?

A non-sufficient funds (NSF) fee averages $34.21, according to Cushion’s analysis of more than one million overdraft fees.

You can rack up multiple fees on the same transaction. If you make a payment that does not clear your account, a financial institution may try to reprocess the transaction. This can result in multiple fees on the same purchase.

Not all banks charge NSF fees. There are some virtual banks, and even some traditional banks, that have eliminated them altogether. For the most part, though, banks charge non-sufficient funds (NSF) fees for insufficient funds.

Are NSF Fees Legal?

Yes, your financial institution is legally allowed to charge you a fee if there are insufficient funds in your account. An NSF fee is a type of overdraft fee. You’ll get charged if you attempt to pay for a transaction but do not have enough funds to cover it. It is up to the bank or credit union to decide whether or not they cover transactions for you.

Bank charges are entirely at the discretion of the financial institution. This means that if the bank covers one transaction for you, they don’t necessarily have to cover the next one.

The Difference Between an Overdraft Fee and an NSF Fee

Overdraft and NSF fees both begin with you having insufficient funds to cover a transaction. They both end with a hefty charge. While banks decline transactions for a non-sufficient funds fee, they spot the bill when you overdraft. In other words, you can make the purchase, but your account balance falls negative.

When banks and credit unions charge an overdraft fee, they loan you the funds if you do not have enough money in your account. With non-sufficient funds fees, banks decline the transaction. In both cases, they usually charge you a fee.

Whether or not banks pick up the bill depends on:

  • The bank’s policy
  • The amount of the negative balance
  • Your history with overdrawing your account
  • Overdraft protection status

Overdraft Protection

Financial institutions ask customers if they’d like to opt into an overdraft protection program when opening a bank account. You are not required to opt in. According to a 2014 study by the Consumer Financial Protection Bureau, opted-in accounts pay on average $21.61 per month on overdraft and NSF fees. Accounts that aren’t opted in average $2.98 per month.

NSF and overdraft fees look similar on your bank statement, however financial institutions count them as separate fees. Therefore, you can be charged the maximum number of daily fees for both overdraft and NSF fees if you have insufficient funds. You cannot be charged both fees on a single purchase.

Does overdraft protection help with NSF fees?

You can receive an NSF or insufficient funds fee due to a low account balance even if you haven’t opted into the program or have exceeded your limit. Many banks cover checks, automatic payments, and recurring debit transactions even if you are not opted in.

However, when it comes to everyday debit card transactions and ATM withdrawals, you typically have to opt into a special form of protection in order for the bank to allow you to overdraw your checking account. If you don’t opt into the program, you usually will not be penalized for attempting to do one of these types of transactions. You will also not incur any NSF fees.

On the other hand, if you are opted into the program , you can incur NSF fees on everyday debit card transactions and ATM transactions if your checking account balance is too low. It’s up to the bank whether they will allow you to go into the red on a purchase. It’s also up to the bank whether they’ll charge you a fee for overdrawing your account. They could choose to decline the purchase and charge you an NSF fee instead.

Read more about what to know before opting into overdraft protection.

A man pays with a debit card using a point-of-sale terminal on the counter of a flower store

Examples of Overdraft and NSF Fees

You have $5 in your checking account. You attempt to complete a debit card transaction for a $20 dinner.

  • With overdraft protection, your bank will likely cover the transaction. With a $35 overdraft fee, your bank account is overdrawn by $50.
  • If you’re not opted in, your card will be declined due to insufficient funds. Your bank will not withdraw any money from your account, and you’ll have to pay the check for dinner a different way.


With $5 in your checking account, you write a $20 check to your neighbor. This would be considered a bad check.

  • With overdraft protection, your bank might cover the check and your balance will be -$50.
  • If you’re not opted in, the check will bounce. You will receive an NSF fee from your bank, and your neighbor will likely receive a fee from his or hers as well. With a $35 NSF charge, your account balance could now be -$30 or more.

Do NSF Fees Affect Your Credit Score?

Financial institutions don’t typically report debit card activity to the credit bureaus like they do for credit cards and accounts. Therefore, fees should not affect your credit score.

While NSF payments and bounced checks won’t directly affect your credit score, they can appear on debit reports. Debit reports show your banking history. This helps financial institutions decide whether to approve you for new accounts and withdrawal limits.

How can Cushion help me?
Cushion Bill Pay gives you more visibility and control over your finances than ever before. Many people get hit with bank fees—such as overdrafts and late fees—due to cash flow problems. With Cushion, you can consolidate and track all of your bills and BNPL payments in one place, plan your budget by reviewing what’s coming down the pike, and avoid overdraft fees by temporarily pausing payments that might overdraft your account and resuming them when you are ready.

Tips to Avoid NSF Fees

NSF fees can be unavoidable. In the moment, all you can do is pay with cash or another card. However, there are things you can do to avoid NSF fees in the future and vastly improve your personal finance situation. 

Keep an eye on your checking account balances

Financial institutions are not legally required to notify an account holder if they have been charged bank fees on their checking or savings account. The bank can apply the fee and deduct money from your account without you ever having known.

To make sure that you always have sufficient funds in your account, set up low-balance alerts. This will notify you when your funds are low or if you’ve overdrawn your balance. You can set this up through online banking or within a mobile banking app. Remember: If you do not have sufficient funds, NSF fees can send you further into the red.

Track your electronic payments

If you’ve set up automatic payments to take care of essential, recurring bills, it’s important that you keep a thorough log of when those expenses will be removed from your checking accounts. You should also know how much those payments will be.

Your billers will try to charge your account. If you do not have enough funds in your account, the bank will push back. They may charge you an NSF fee, which could lead to late payments and even late fees with your biller.

Transfer money from a checking or savings account ASAP

This can be easier said than done. If you’re able to transfer more money from a checking account or savings account into your primary account, this can help you avoid a major headache. Overdraft and NSF fees are tough because they penalize you financially for not having enough money in your account to start with. Overdraft fees can be a very difficult hole to dig yourself out of.

Reconsider your overdraft protection status

It can be wise to not opt in if you’re trying to manage your spending, but the protection can occasionally come in handy. If you write a lot of checks or have many automatic payments scheduled to come out of your account, you should consider opting into the program. This allows you to transfer from a linked account or overdraft line of credit rather than racking up NSF fees.

There are alternate settings that allow you to link another bank account, such as a checking account or savings account, or overdraft line of credit to cover transactions for a lower fee.

Read more about how to get overdraft-related fees waived.

Cushion helps you waste less money, save more, and live a financially healthier life. We monitor your bank and credit card accounts 24/7, find and alert you about pesky fees, let you know which fees are negotiable, which banks are cooperative, and can even automatically negotiate on your behalf.* To date, Cushion has secured customers more than $13 million in bank and credit card fee refunds—and we’re just getting started.

*Cushion only negotiates fees with high refund odds. We cannot guarantee any negotiations, a regular frequency of negotiations, or fee refunds—your bank makes the final call.

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