What Is an NSF Fee?

When you try to spend or use money from your bank account that you don’t have, you might get charged a non-sufficient funds (NSF) fee. Sometimes referred to as an “insufficient funds fee,” your bank charges it when you try to tap your account for an amount that exceeds your balance.

While many banks, credit unions and online lenders charge NSF fees, not all do. Here’s a closer look at NSF fees and how to avoid them.

What is an NSF fee?

An NSF fee is a fee your bank charges when you don't have enough money to cover a transaction and the payment is canceled or rejected. This transaction could be a payment you try to make through your account, an ATM withdrawal or a money transfer.

A bank can charge an NSF fee when it declines a payment from an account that doesn't have sufficient funds to cover a transaction. The fee might also be charged if the account doesn't have overdraft protection or has exceeded an overdraft protection limit.

The average NSF fee is around $34, but there are no set rules on how much banks can charge or when the fee gets charged.

NSF fees vs. overdraft fees

Both NSF and overdraft fees are charged for having less money in your account than the transaction request. NSF fees are usually triggered when transactions are declined. Overdraft fees, on the other hand, are charged when the bank allows transactions to go through, but for an additional fee. In other words, this fee applies when a bank temporarily covers a transaction that exceeds the amount in the account.

Some banks impose NSF and overdraft fees together, while others break them up and charge them separately. Some banks don't charge either type of fee. It's up to each financial institution to decide how to impose NSF and overdraft fees.

It's sometimes possible to get overdraft protection to avoid incurring overdraft fees. How this protection works varies by bank and type of account, and some may charge a fee to have overdraft protection on your account.

Overdraft protection may cover a transaction up to a specific dollar amount for a certain amount of time. For example, your bank may cover up to $50 per day. Say you make a transaction for $100 but only have $75 in your account. Your bank may cover the remaining $25 and approve the transaction, but you will have one day to deposit the remaining funds into your account before facing an overdraft fee.

In some institutions, linking a checking and savings account allows overdraft protection. This means if your checking account is overdrawn, money will be automatically transferred from your savings account to cover the shortfall.

Are NSF fees legal?

While NSF fees are legal, banks are not required to charge them. Each financial institution decides whether to charge them and how much to charge.

That said, the Consumer Financial Protection Bureau (CFPB) believes these fees are harmful to consumers, costing them billions of dollars every year. The CFPB has proposed eliminating NSF fees completely, calling them abusive.

Do all banks charge NSF fees?

In recent years, many financial institutions have eliminated NSF fees. According to the CFPB, nearly two-thirds of banks with over $10 billion in assets have eliminated NSF fees, leading to the elimination of 97% of NSF fee revenue.

Not all banks, credit unions and online lenders have stopped charging NSF fees, but many have, including:

• Wells Fargo
• J.P. Morgan Chase
• Bank of America
• T.D. Bank
• Truist
• U.S. Bank
• Regions
• PNC Bank
• USAA
• Huntington
• Citizens
• Woodforest
• Keybank
• Fifth Third
• M&T Bank
• Citibank
• Capital One
• Arvest Bank
• BMO Harris

How to avoid an NSF fee

If you're susceptible to NSF fees or think you might be, you can do a few things to avoid them:

• Find a fee-free bank. Look for a bank, credit union or online lender that doesn't charge NSF fees. Many big, brick-and-mortar banks, like those listed above, no longer charge NSF fees. They may charge other fees, though, like monthly maintenance or overdraft fees, so make sure you're not likely to face those.
• Track your account regularly. Make sure you have enough money in your account by checking it often. Download your bank's app on your phone and log into your account regularly to make sure everything is as it should be. Before starting a transaction, ensure you have enough money in your account.
• Sign up for overdraft protection. Many banks offer overdraft protection when you link two accounts, like a checking and savings account, at the same institution. Getting overdraft protection can save you potential overdraft fees as well as NSF fees. Check to see if your bank offers an overdraft protection buffer, up to a certain amount, so you're covered in case something happens.

What happens if you don’t pay NSF fees?

In many instances, your bank may automatically withdraw NSF fees from your account once you've deposited the funds to return your balance back to the positive. As such, it is hard to avoid paying NSF fees because your bank may simply take that money from your account.

If you fail to pay back outstanding NSF fees or bring your account balance into the positive, your account may no longer be in good standing. This could result in your bank closing your account. and if outstanding debt remains, it could get sent to a collection agency.

Debt in collections is reported to the credit bureaus and could negatively affect your credit score. A low credit score hurts your chances of future borrowing, whether it’s securing a loan to purchase a car or home or getting approved for a credit card.