Turning beet-red when your debit card is declined at a Target store is the least of your worries. A declined debit card transaction might mean your account has insufficient funds. If so, your bank will charge you Non-Sufficient Funds (NSF) fees.
The consequences will be worse if you issue an insufficiently-funded check. Your check will bounce, the bank will charge you an NSF fee, and your payee will be penalized by their bank. Things can go from bad to worse if the payee accuses you of check fraud.
26.5% of consumers – more than a quarter – were charged NSF fees and overdraft fees in 2023.
Your loss is the bank’s gain.
From 2015 to 2019, banks generated $11 to $12 billion annually from NSF and overdraft fees.
While the Consumer Financial Protection Bureau (CFPB) has taken measures to restrict banks from charging excessive fees, you can do your part to avoid NSF fees.
What Is a Non-Sufficient Fund (NSF) Fee?
A Non-Sufficient Fund (NSF) fee is a penalty you incur if your bank account doesn’t have enough funds to pay for a transaction.
Here’s a short list of transactions that can trigger an NSF fee:
- Issuing check payments.
- Automatic debit card transaction for recurring payments (subscription services and monthly membership fees).
- Scheduled payments for auto loans, utility bills, credit card bills, and mortgages.
When a transaction is charged to your account, but there aren’t enough funds to cover it, the bank will decline it and penalize you with an NSF fee.
According to the Consumer Financial Protection Bureau (CFPB), the median NSF fee charged by financial institutions in 2023 was $32.
What Are the Consequences of an NSF Transaction?
If you attempt to purchase an item with an insufficiently funded debit card, the transaction will be declined, and your bank will charge you an NSF fee.
The consequences aren’t as simple and straightforward with a check transaction.
If you write a bounced check, it will be returned, and you will be penalized with an NSF fee. The payee’s bank will also charge them a corresponding penalty fee.
Likewise, issuing bounced checks can get you in legal trouble. The payee might criminally charge you with check fraud and demand restitution.
Banks are not obligated to inform customers they were charged NSF fees.
If you’re unaware you have insufficient funds and recurring payments are regularly processed through your account, your bank will continue penalizing you with NSF fees.
You can also be charged multiple NSF fees on the same transaction.
For example, if a payment to a subscription service was previously declined, the provider might try to process the transaction several times. The bank might charge you additional fees for repeated transactions.
You might only find out when you were charged with NSF fees when you read your bank statement. You could accumulate hundreds of dollars in NSF fees without knowing it.
If you issued a bounced check, the fee might appear in your bank statement as a “returned check fee.”
💡Pro Tip: To be certain, talk to your bank about its NSF policies. Find out how much the NSF fees are and if programs are available to protect you from these penalties.
6 Tips on How to Avoid Incurring NSF Fees
Why do consumers incur NSF fees?
- They forgot about canceling free trials to subscription services.
- They didn’t keep track of issued checks.
- They assumed their account had sufficient funds to handle scheduled payments.
Incurring NSF fees is largely a result of human error.
Thus, it can be avoided.
1. Monitor Your Account Balances
Monitoring your account balances is a good money management practice. Keep track of how much money you have in your checking and savings accounts.
You can set up low-balance account alerts through your bank’s online banking platform or a mobile app. You’ll be sent a text or email notification if your account balance is running low on funds.
Establish a threshold that will give you time to replenish your account before the payments come in.
2. Review Your Monthly Cash Flow
A cash flow statement summarizes your sources of funds (inflows) and payment obligations (outflows). It will identify expected dates of deposits for cash inflows and payment due dates for cash outflows.
Include all types of charges:
- Check payments
- Recurring payments
- Scheduled payments
- ATM withdrawals
Frequently update your cash flow statement, especially if unexpected expenses occur. You’ll know if your account balances have sufficient cash or if you have to deposit additional funds.
If you see that you’ll be tight on funds, you’ll have time to contact the payee, supplier, or service provider and request a delayed payment.
3. Sign Up for Overdraft Protection
Like an NSF, an overdraft results in a penalty when your bank account doesn’t have sufficient funds to cover a transaction.
As we’ll explain later, there are differences between an NSF and an overdraft.
Some banks offer overdraft protection programs. If you sign up for overdraft protection and a transaction is processed through an insufficiently funded account, your bank might accept it and charge you an overdraft fee.
However, if it’s a check transaction, the bank might honor it, charge you an overdraft fee, or reject it and charge you an NSF fee.
4. Find a Bank That Doesn’t Charge NSF Fees
An easy solution to avoid NSF fees is to open accounts with a bank that doesn’t charge them.
Bank of America, Chase, and Wells Fargo are big banks that no longer charge NSF fees. Regional and virtual banks such as Capital One, Ally Bank, Discover Bank, Chime, and SoFi also don’t charge NSF and overdraft fees.
5. Link Another Bank Account
Some banks will allow you to link a second account to your primary account as a contingency against fund shortfalls.
For example, link your savings account to your checking account. Authorize the bank to automatically transfer funds from savings to your checking account to cover insufficiently covered checks.
6. Set Up Automatic Salary Deposit Arrangement
Find out from your employer if they can arrange for automatic salary deposits. If the arrangement is possible, provide your employer with your account details. You’ll feel more assured of having sufficient funds in your account.
Remember, some creditors might deposit your checks at a later date. You’ll have enough time to review your cash flow and bank statements and see if additional deposits are needed.
💡Note: If you want your NSF fee reversed or refunded, contact your bank. If it’s your first time incurring an NSF fee, you have multiple accounts, or you have a good relationship with your bank, there’s a chance your refund request will be approved
What Are the Differences Between NSF Fees and Overdraft Fees?
An overdraft is similar to an NSF in that it involves processing a transaction with an insufficiently funded account.
However, there are differences in how banks handle NSF and overdraft situations.
| Item: | Non-Sufficient Fund (NSF) | Overdraft |
| Amount of Fee: * | $32 | $35 |
| Transaction Approved | No | Yes |
| Bank Notification | No | Yes |
* – Consumer Financial Protection Bureau (CFPB) study
If you avail of your bank’s overdraft protection program and an overdraft occurs, the bank can accept the transaction and charge you an overdraft fee.
The amount of the overdraft fee will vary from bank to bank. You can view the overdraft fee as a loan from the bank.
With an NSF, the transaction is declined, and you’ll be charged an NSF fee.
Unlike an NSF, the bank will inform you if you incurred an overdraft.
Can NSF Fees Affect Your Credit Score?
No.
Banks and financial institutions aren’t required to report debit card transactions to the three credit bureaus: Experian, TransUnion, and Equifax.
Thus, NSF fees won’t affect your credit scores.
However, NSF fees and bounced checks will show up on debit reports, which summarize your banking history.
Also, a bounced check might delay the payment of loans or credit cards. Payment delays will be reported to the credit bureau, affecting your credit score.
Should You Avail of an Overdraft Protection Plan?
Yes, if you issue a large number of checks, subscribe to multiple services, or have loans that are automatically debited from your account, it would be a good idea to avail of an overdraft protection plan.
However, if your cash flow isn’t volatile and the number of monthly payments is manageable, forego the overdraft protection plan.
Instead, follow our five other tips for avoiding NSF fees.
Can NSF and Overdraft Fees Be Regulated?
Yes.
In 2024, the CFPB proposed a rule requiring banks to disclose all charges that are incorporated in penalties, including NSF and overdraft fees.
The objective of the rule is to protect consumers from “junk fees” or hidden charges that are packaged with goods and services, as well as penalties.
The CFPB observed that NSF and overdraft fees have risen in the past few years. As shown in the table above, the median fee for NSF and overdraft fees are $32 and $35, respectively. In contrast, the median fee for debit card overdrafts is $26 and can be settled in three days.
According to the CFPB, in 2019, banks generated $12.9 billion in revenues from overdraft fees.
The proposed rule of the CFPB has the following features:
- Banks and other financial institutions must provide clear disclosures and protections on overdraft fees as they would for credit cards and other types of loans.
- Overdraft protection plans must be viewed as an added convenience for depositors and not as profit drivers for banks and other financial institutions.
- Banks and financial institutions can charge fees that are in line with their costs or in accordance with CFPB benchmarks. The CFPB has recommended benchmarks of $3, $6, $7, and $14.
The CFPB believes that once the proposed rule takes effect in October 2025, it could save consumers $3.5 billion in overdraft fees.
Summary
A Non-Sufficient Funds (NSF) fee is charged on transactions that can’t be processed because the account has insufficient funds.
Monitoring your bank balances, reviewing your monthly cash flow, and linking another account to your checking account are a few practices that can help you avoid NSF fees.
