NSF fees: What they are and how to avoid them

NSF fees are a type of fee that some banks charge when there isn’t enough money in a customer’s checking account to cover a transaction. 

Capital One doesn’t charge NSF fees, and thanks to the Consumer Financial Protection Bureau (CFPB), more banks are eliminating them. But for those who still have to pay them, especially those living paycheck to paycheck, the expenses can add up quickly and be hard to recover from.

Read on to learn more about NSF fees and how to avoid them.

Key takeaways

  • NSF fees are a type of fee that’s charged when there’s not enough money in an account to cover a check or ACH transaction.
  • The average NSF fee in 2022 was $26.58.
  • Capital One doesn’t charge NSF fees. 
  • Finding a bank that doesn’t charge NSF fees, signing up for low-balance alerts and using overdraft protection are a few ways to avoid the fees.

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What is an NSF fee and how does it work?

“Non-sufficient funds” or “insufficient funds” describe situations when an expense exceeds the available funds in an account holder’s checking account

When some banks receive a check or ACH transaction for an account with non-sufficient funds, they’ll return the transaction unpaid and deduct an NSF fee—also known as an NSF charge—from the account.

NSF fees vs. overdraft fees

NSF fees are one of a few different types of fees banks could charge when there aren’t enough funds in an account to cover a payment or a withdrawal. 

  • NSF fees apply to checks and ACH transactions. When there aren’t enough funds in an account to cover a payment or a withdrawal, the bank rejects the transaction and charges the fee. If the same unpaid transaction is resubmitted, the fee could be triggered again. Customers don’t need to opt in for banks to charge NSF fees.
  • Standard overdraft fees apply to debit card transactions and ATM withdrawals. Customers can choose upfront whether to opt in or out of overdraft coverage. Coverage for those who opt in is triggered when they spend more money than they have in their account: The customer pays the fee and the bank honors the transaction. If the spending continues, it can trigger multiple charges, even in a day. Those who opt out can’t be charged a fee but might have their transaction refused. 
  • Overdraft protection fees apply if a customer opts in to a bank’s overdraft protection service, which transfers funds from a linked savings account, credit card or line of credit when there aren’t enough funds in the checking account.
  • Extended overdraft fees are usually applied on top of the standard overdraft fee if an account overdraws and it’s not replenished within 5 to 7 days. If the account stays in the negative, the customer may keep getting hit with the fee.

Why do banks charge NSF fees?

Some banks charge NSF fees when they’re unable to complete a transaction because there’s not enough money in the account. But why? You might assume the charge covers the cost and inconvenience to the bank of rejecting the payment. But as the CFPB notes, the process costs the bank almost nothing. Plus, the agency points out, the customer doesn’t benefit from the practice at all.

How much do NSF fees cost?

According to a study by Bankrate, the average NSF fee was $26.58 in 2022. The same study found the average standard overdraft fee was $29.80. 

There’s no federal limit on NSF fees. And, in general, each bank decides how much to charge. For a clearer sense of how much NSF fees could cost you, it’s a good idea to check with your bank as well as your state regulator or attorney general for the laws in your state. That’s because there are variables around things like how many more transactions the bank might charge you for while the account remains negative and how often you can be charged if the same transaction is submitted multiple times.  

Bear in mind, NSF fees might not be the only charge related to overdrawing an account. The rejected payment may also trigger a returned payment charge from the merchant or service provider. And if it results in a late payment, that could mean penalty fees or interest charges. 

It’s these extra expenses that can, as the CFPB says, “turn setbacks into crises,” especially for those living with limited resources.

How to avoid NSF fees

Here are a few simple strategies that might help you avoid NSF fees:

  • Choose a bank with no NSF fees. Some banks, like Capital One, don’t charge NSF fees or overdraft fees.
  • Monitor your account balance. Knowing what’s in your account can keep you from spending what you don’t have. If an overdraft can’t be helped, it might also help you resolve it more quickly and prevent additional fees. 
  • Keep a budget. A budget can help you better understand what’s coming in and going out and how to live within your means.
  • Review your automatic payments. You can adjust the date of any automatic payments coming out of your checking account to line up with the time of the month that’s best for you—say, when you’ve just been paid. 
  • Consider overdraft protection. If you have overdraft protection and you overdraw your checking account, the bank will transfer money from your linked savings account, credit card or line of credit to cover the shortfall. According to the CFPB, the fee for the transfer is usually much lower than a standard overdraft fee. 
  • Set up an emergency fund. Having an emergency fund could help you pay off an overdraft quickly, before the fees start snowballing.

NSF fees FAQ

Here are some frequently asked questions about NSF fees:

Banks don’t need your opt-in to be able to charge NSF fees when checks and ACH transactions are presented for payment but can’t be covered by what’s in your account. But they do have to publicly disclose their policies on NSF fees. Those should be in your checking account agreement. 

Policies vary by bank, but it’s sometimes possible to get an NSF fee refunded or waived after the fact, especially if you can show the incident was an oversight or accident. You can start by contacting your bank. 

Being charged an NSF fee on its own doesn’t affect your credit. But certain consequences of being overdrawn might. For example, if it causes you to be late with or miss a payment, say on an auto loan, that information may be reported to the credit bureaus and become part of your credit reports.

NSF fees in a nutshell

NSF fees can be a major expense for those consumers who still have to pay them. But there are ways to avoid them.

These days, it’s possible to choose a bank that doesn’t charge NSF fees. Capital One was a leader in 2021 when it announced it was eliminating NSF fees, and many more banks followed suit in 2022.

Digital apps like the Capital One Mobile app can help you monitor your account balance so that you can avoid overdrawing your account—or know more quickly if you do.

There are also things you can do if you’re dealing with the ripple effects of NSF fees or struggling to keep up with your bills and get out of debt.

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