Let’s set the scene: You’ve just paid your monthly utilities, unfortunately a bit too early because your paycheck hasn’t hit your checking account. Without sufficient funds, you’re at the mercy of the bank who’ll either foot the bill and charge you an overdraft fee or decline the purchase and stick you with a penalty for non-sufficient funds — an NSF fee for short. The fees don’t look all that different on your statement, they’re typically around the same amount (averaging $34.21, according to Cushion’s analysis of more than one million overdraft fees), and they’re already kicking you while you’re financially down — so why does it matter what we call them?

Overdraft and NSF fees are often placed into the same bucket. The Center for Responsible Lending reported that U.S. banks collected more than $11 billion in overdraft-related fees in 2019, which includes standard overdraft, NSF, and a number of other overdraft varieties. However, understanding the nuances of these fees can help you make more thoughtful decisions for your financial situation, as well as sidestep money-related mistakes in the future.

What is a standard overdraft fee?

An overdraft occurs when you don’t have enough money in your account to cover an ATM withdrawal, debit purchase, online payment, or transfer. To overdraft your account, you must opt into overdraft protection, though the protection does not apply to pre-authorized transactions, such as automatic payments or checks. Once opted in, the bank can allow you to overdraft your account by loaning you the funds for a purchase, but they will charge you a fee for doing it.

Read more about how to get an overdraft fee refund. 

What is an NSF fee?

Much like an overdraft fee, you’ll receive an NSF fee if you don’t have enough money in your account to cover a purchase, withdrawal, or transfer. The difference with this one is that the bank can choose to decline the purchase and charge you for having insufficient funds rather than picking up the bill. This can occur if you’ve opted out of overdraft protection, exceeded your overdraft protection limit, or if you’ve written a check to someone without adequate funds in your account. In the latter instance, the check will bounce, or be returned to the person who tried to deposit it, and you’ll receive an NSF fee, also known as a returned item fee.

Why does the difference matter?

There are slight distinctions between the two fees that determine how much money you will ultimately owe the bank (and why you’re being charged in the first place). Here are some things to keep in mind if you’re constantly hit with overdraft or NSF charges — or both.

They look similar on your bank statement, but you can be charged the maximum of both overdraft and NSF fees in a single day. It’s important to note that you cannot be charged both fees on a single purchase. The kicker, though: While many banks limit overdraft amounts — either by total dollar amount or number of fees per day — NSF fees may not be included in that limit. This means that you could wind up paying both a maximum number of overdraft and NSF fees in one day, a real blow to your account if all of your auto-pay bills come out of your account on the same day or if you make a number of debit purchases consecutively.

Overdraft fees can lead to extended overdraft fees. If your account stays overdrawn for an extended period of time, a bank will charge you an extended overdraft fee. The length of time that your account can be overdrawn and the amount that the bank charges varies from bank to bank. Some charge every 5–7 days, while others apply a fee each day that your account is overdrawn, and you could pay anywhere from $5–$40 for each charge.

You can rack up multiple returned item fees on one transaction. If you make a payment that does not clear your account, a bank may try to reprocess the transaction; this could result in multiple NSF charges on the same purchase. Imagine—you give your nephew a $25 check for his seventh birthday, but the check bounces due to insufficient funds. Your bank may try to reprocess the transaction days later, but the check bounces once again and you land another NSF fee. Now you have a sad nephew, and you’re $70 in the hole.

So what can you do?

The answer is not so cut and dried. If your purchase or withdrawal goes over the available amount in your account, the bank ultimately decides whether or not to loan you the funds and charge an overdraft fee or decline the purchase and charge an NSF fee. The decision depends on:

  • The bank’s policy
  • The amount of the negative balance
  • Your history with overdraft and NSF charges

While there’s not a whole lot you can do in the moment, there are a couple things you can do to prepare yourself for potential overdraft and NSF fees in the future.

  1. Keep an eye on your account balances and charges. This is the best—and probably most obvious—thing you can do is. Banks are not legally required to notify you if you’ve overdrafted or incurred an NSF fee. It may be applied and deducted from your account without you ever having known. To stay on top of your account balance, set up alerts to notify you when your funds are low or if you’ve overdrafted. This can typically be done within a mobile banking app.
  2. Consider the pros and cons of opting into overdraft protection. The program can help out in a pinch, but it can also do more harm than good. Read more about what to know before opting into overdraft protection here.
  3. Get an NSF or overdraft fee refund. The fee may sting in the moment, but luckily there’s a way out. You can dispute overdraft fees by contacting your bank on your own, or have Cushion handle the negotiation for you. Cushion has gotten its users more than $4 million in bank and credit card fee refunds — we know how to get overdraft fees refunded, from just what to say and when exactly to say it. Read more about how to get overdraft fees waived.

Avoid fees in the first place.

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Last Updated on September 12, 2023