The offers on this page are from advertisers who pay us. That may influence which products we write about, but it does not affect what we write about them. Here's an explanation of how we make money and our Advertiser Disclosure.

What is a nonsufficient funds (NSF) fee?

These fees cost $34, on average.

Yahoo Personal Finance· Getty Images
4 min read

A nonsufficient funds (NSF) fee is a bank fee you might incur if you don’t have enough money in your account to cover a transaction. NSF fees can be quite expensive, but the good news is that they’re avoidable.

Here’s a closer look at how NSF fees work and what to do to prevent being charged.

A nonsufficient funds fee, also known as a returned item fee, is a penalty a bank charges when there isn’t enough money in your account to cover a transaction. This might include automatic online payments or a check you have written. If the bank rejects the transaction due to insufficient funds, you may be charged an NSF fee to compensate for the inconvenience.

Fortunately, many of these fees have been eliminated thanks to recent legislation from the Consumer Financial Protection Bureau (CFPB). According to the organization, nearly two-thirds of banks with assets over $10 billion had already eliminated NSF fees as of October 2023. However, 16 of 20 credit unions with over $10 in assets were still charging NSF fees at the time.

The exact cost of NSF fees varies by financial institution. According to the CFPB, the average NSF fee is around $34. This fee is charged per transaction, and it’s possible to incur a fee of this size even if the transaction is much smaller than $34.

Federal laws don’t limit the total amount banks can charge with these fees. This means NSF fees can add up quickly, especially if multiple transactions fail before you can replenish your account. Merchants might charge their own additional fees, too, such as for bounced checks.

You might incur an NSF fee whenever you attempt to overdraw your account. This can happen in many situations, such as:

  • Writing a check: If you write a check that someone later cashes and there isn’t enough money in your account to cover it, this is known as a “bounced” check. This might result in an NSF fee.

  • Debit card transactions: If you try to make a debit card transaction, such as an online or in-store purchase, and you don’t have enough money in your account, you may be charged an NSF fee.

  • Automatic payments: Another possibility is an automatic payment you set up, such as monthly payments for subscriptions or utilities. You might be charged an NSF fee if there isn’t enough money to cover these transactions.

NSF fees and overdraft fees are similar, and you could be charged one or the other depending on the situation.

If the bank rejects the transaction due to insufficient funds, this may result in an NSF fee. If the bank covers the transaction by temporarily loaning you the money, it may charge an overdraft fee. In the case of an NSF fee, the bank doesn’t allow the account to go negative. With an overdraft fee, the bank allows you to draw your account beyond the available balance.

Read more: Can overdrafting affect your credit score?

Many consumers have faced an NSF fee at some point. However, there are several ways to avoid these fees. You can potentially avoid NSF fees in the following ways:

  • Keep track of your balance: Often, NSF fees happen because we aren’t closely monitoring our account balances. Keeping track of your available balance can help you avoid spending more than you have.

  • Link a savings account: Many banks and credit unions let you link a savings account to your checking account. If your checking account doesn’t have enough to cover a transaction, it will automatically transfer money from the savings account, sometimes with no fee.

  • Enroll in overdraft protection: You often have the option to enroll in overdraft protection, allowing transactions to go through even if you don’t have enough money in your account. However, this service may come with its own fees.

  • Set up low balance alerts: Many banks and credit unions let you set up alerts for when your account falls below a certain threshold, such as $100. This can help you keep track of your balance.

Read more: The best checking account bonus offers and promotions today

There is no guarantee that your NSF will be waived, but you can always call the bank and ask. The bank may be more flexible if your account is in good standing and this is your first instance of incurring NSF fees.

NSF fees don’t directly affect your credit because financial institutions don’t report these fees to the three major credit bureaus. However, they could indirectly affect your credit, such as when the situation delays payment on a loan or another debt.

Not paying NSF fees can have serious consequences, such as repeatedly incurring the same fee or having the account sent to collections. In severe cases, the bank could even close your account. Bank policies vary, but it’s always best to pay NSF fees if you incur them.