What are Overdraft and NSF Fees?

Overdraft fees and non-sufficient fund (NSF) fees are two common fees that many bank customers encounter. These fees are often associated with checking accounts, and they can be a significant source of frustration and financial strain for consumers. The idea behind overdraft fees and NSF fees, is that when a customer makes a transaction but does not have enough money to cover it, the financial institution will cover it with their own funds and charge the customer a service fee for this short-term loan. In this blog post, we will explain what overdraft fees and NSF fees are, how they work, and what you can do to avoid them.  

What are Overdraft Fees? 

An overdraft occurs when you spend more money than you have available in your checking account. If your account has overdraft protection, your bank may cover the difference and charge you an overdraft fee. Overdraft fees can range from $10 to $40 or more, depending on the bank. For example, if you have $50 in your checking account, but you spend $75 on groceries. If you have overdraft protection, your bank will cover the $25 difference and charge you an overdraft fee. If the fee is $35, you will now owe the bank $60 ($25 for the overdraft and $35 for the fee). 

What are NSF Fees? 

An NSF fee, also known as a bounced check fee, occurs when you do not have enough money in your account to cover a check or other transaction. When this happens, the bank will return the check or transaction unpaid and charge you an NSF fee. Like overdraft fees, NSF fees can range from $10 to $40 or more, depending on the bank. For example, let’s say you write a check for $100, but you only have $50 in your account. The bank will return the check unpaid and charge you an NSF fee. If the fee is $30, you will now owe the bank $130 ($100 for the check and $30 for the fee). 

How to Avoid Overdraft and NSF Fees 

The best way to avoid overdraft and NSF fees is to keep track of your account balance and spending. Here are a few tips to help you avoid these fees: 

1. Set up account alerts: Many banks offer account alerts that can notify you when your balance is low or when a transaction exceeds a certain amount. 
2. Use mobile banking: Most banks have mobile apps that allow you to check your account balance and transaction history on the go. 
3. Link accounts: If you have multiple accounts, consider linking them so that you can transfer funds easily and avoid overdrafts.
4. Keep a buffer: Try to keep a buffer of at least $100 in your checking account to avoid overdrafts.
5. Opt out of overdraft protection: If you do not want to be charged overdraft fees, you can opt out of overdraft protection. This means that if you do not have enough money in your account, the transaction will be declined.   

Serving Consumers Nationwide 

Overdraft fees and NSF fees can be expensive and frustrating, but they can potentially be avoided with a little planning and diligence. By keeping track of your account balance and spending, setting up account alerts, and linking accounts, you may avoid these fees and keep your finances in order. If you do incur these fees, be sure to pay them promptly to avoid additional charges and negative consequences such as damage to your credit score. Our financial services team of lawyers are familiar with all the tactics used by banks and lenders and effectively level the playing field by competently representing the interests of consumers who have been wronged.