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What is a nonsufficient funds, or NSF, fee?
When a bank declines a payment due to the customer having inadequate funds in an account, the customer can be charged a nonsufficient funds fee, or NSF fee. A “bounced check fee” is a type of NSF fee that arises when a customer writes a check against an account that doesn't have the money to cover the check amount or when someone deposits a check and the check writer does not have enough funds in their account to cover it. There can sometimes be criminal or civil consequences for writing bad checks, so customers should try to recover from these fees as quickly as possible.
» Learn more about bounced check fees
NSF fees could also apply to Automatic Clearing House, or ACH, transactions that are rejected due to lack of funds. For example, you could be charged an NSF fee if you set up automatic bill pay from your checking account and don't have enough money to cover the bill.
Recent changes to NSF fees nationwide
According to the Consumer Financial Protection Bureau, the vast majority of NSF fees in the U.S. have been eliminated as of October 2023. Most banks with assets over $10 billion have eliminated NSF fees, says the CFPB. This change, along with a recent push by the CFPB to limit overdraft fees, could save consumers billions of dollars in fees annually, the agency estimates.
What's the difference between NSF fees and overdraft fees?
NSF fees and overdraft fees can both be charged when a customer lacks the funds in their account needed to cover a check, transaction or payment. In contrast to overdraft fees, typically assessed after a transaction has been processed and a customer's account is left with a negative balance, NSF fees are levied after a bank rejects a transaction because the customer doesn't have enough money. When customers opt out of overdraft protection, they are likely to be charged an NSF fee when they write a check, make a debit card transaction or make an electronic payment that they lack the funds to cover.
Here's an example of how NSF fees might work compared with overdraft fees. Say you have $100 in your account, but you try to write a check for $120. You haven't opted-in to overdraft protection, so the check bounces and your bank charges you $34 — the average cost of an NSF fee. Your account balance is now $66 ($100-$34).
Let's look at the same scenario for an overdraft fee. Your $120 check doesn't bounce, but now your account total is -$20 ($100-$120). However, you don't have overdraft protection, so your bank charges you a $35 overdraft fee — the average cost. So now your account balance is -$55 (-$20-$35).
How to avoid an NSF fee
If you're concerned about NSF fees, you may want to opt-in to overdraft protection if your bank offers it. Overdraft protection can take the form of free overdraft protection transfers from a linked savings account, overdraft lines of credit or grace periods. In addition, some financial institutions offer a buffer, where you can overdraft up to a certain amount, such as $100, and you won't be charged a fee. Instead, you'll just be expected to replenish your account as soon as possible.
Other ways to avoid an NSF fee or overdraft fee would be to set up low account balance alerts or to look for other banks that offer more flexible overdraft policies.
Frequently asked questions
How much do NSF fees cost?
The average cost of an NSF fee is $34, according to the Consumer Financial Protection Bureau.
How do I get my NSF fee waived?
There’s no guarantee that your bank will waive your NSF fee, but you can contact your bank’s customer service department to ask if they’d be willing to reverse it. If your account is in good standing — meaning you have a track record of very few overdrafts or NSF fees — there’s a chance that you can have the fee waived, especially if you add more funds into your account to cover the original transaction that triggered the fee.
What happens if I don’t pay an NSF fee? Does it hurt my credit?
Unpaid overdraft and NSF fees can prompt your bank to report you to ChexSystems, a consumer reporting agency. Like the major credit bureaus, ChexSystems keeps a report of your consumer behavior, including unpaid bank fees. When you try to open a new bank account, the bank may deny your application based on your ChexSystem record. Your ChexSystems record doesn’t affect your credit score. However, ChexSystems retains consumer records for up to five years, which may affect your ability to open a new bank account during that time frame. You can take some steps to clear up your ChexSystems record, but you may have to wait until the information drops off your report. If you’re having trouble opening a new account because of a ChexSystems record, check out the second-chance checking accounts available throughout the United States. These accounts are designed to help customers rebuild their banking history.
Like with overdraft fees, being charged an NSF fee doesn’t affect your credit by itself, but if you miss a payment to a business — such as a utility company or a car loan issuer — because of an NSF fee, the business may report you to the credit bureaus, which would affect your credit score.
