Nonsufficient funds fees: What are they and how can you avoid them?

The Biden administration has been working to crack down on junk fees in an effort to bring down costs for American consumers. These “can strain the financial stability of even the most financially savvy families.”

Recently the Consumer Financial Protection Bureau (CFPB) announced that companies would be “refunding $140 million to consumers, $120 million of which is for surprise overdraft fees and double-dipping on non-sufficient funds fees.” While many may think overdraft and nonsufficient funds fees are the same they are not.

Nonsufficient funds fees: What are they and how can you avoid them?

Overdraft fees are incurred when you don’t have enough funds in your account at the time you make a purchase or some other transaction taps your account. If your bank lets the transaction proceed, it is essentially giving you a mini-loan to cover the amount that you are short with an additional fee for the service.

On the other hand, as the name suggests, nonsufficient funds (NSF) fees are leveled by some banks when you don’t have enough money in your account to complete a pending transaction. For example, you write a check and when the payee goes to cash it, the check bounces and you get charged a fee. The same goes for a scheduled electronic transfer to pay a bill say and there isn’t enough money in your account to cover it. If you have more than one of these transactions in the same day, you may be charged a fee for each one which can add up fast.

Nonsufficient funds fees: How can you avoid them?

Fortunately for US consumers, banks have been voluntarily getting rid of the latter eliminating 97 percent of NSF fees, expected to save US consumers around $2 billion a year according to the CFPB. The financial watchdog reports that almost two-thirds of banks with assets over $10 billion no longer charge NSF fees, no bank with over $75 billion in assets applies NSF fees.

With that in mind, you should check to see if your bank charges NSF fees. If so, don’t be afraid of switching to one that doesn’t. You can check the CFPB report to see which ones do and don’t charge NSF fees.

Otherwise, it’s a matter of always making sure that you have enough money in your account. You can sign up to receive alerts when you are getting low on funds to help keep you aware of when you’ve drained your account.

This will also help avoid incurring overdraft fees if your bank offers the service and you have access to it. Usually when you open a new account you will be asked if you want to sign up but the fee for using the service can be quite costly depending on the financial institution.

There’s good news on this front though too. Many banks are lowering their overdraft fees or even eliminating them altogether. Nerd Wallet provides a list of banks and their overdraft fee policies to make shopping around easier.