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Overdraft Fees vs. NSF Fees


Both overdraft and NSF fees can hurt the cash flow in your bank account, especially when it’s time to pay a bill. The respective fees could stop you from going to the store to get personal items. But while the two are often grouped together, they aren’t the same. Here is how you can get charged for each and what the differences are.

Consider working with a financial advisor as you make personal finance decisions.

What Are Overdraft Fees?

Overdraft fees can occur when you try to transfer money out of your bank account and there isn’t enough money to cover the transaction. When an overdraft occurs, the bank covers the remainder of the transaction and may or may not charge an overdraft fee.

Overdrafts can happen either manually, like when you use your debit card, or automatically, like with a monthly bill payment. Overdraft fees do vary by bank, but according to the FDIC, the cost may be approximately $35.

How Overdraft Fees Work

Each bank has its own overdraft policies. For example, some charge significant fees each time your account is overdrawn, while others waive these fees entirely. Typically, banks will protect customers against overdraft fees, up to a certain amount – but only if they have opted into overdraft protection.

Even if you opt into overdraft protection, it doesn’t mean you won’t be charged for overdrafts. It simply means the bank will let transactions go through when you don’t have enough funds to cover a transaction. Whether the bank charges a fee for this service is for them to decide.

What Are NSF Fees?

SmartAsset: Overdraft fees vs. NSF fees

Non-sufficient funds or NSF fees also occur when you don’t have enough money in your account to cover a transaction. However, with an NSF fee, the transaction won’t complete. This is what usually results in a situation where a check “bounces.” The average NSF fee is $34 in the U.S., according to the Consumer Financial Protection Bureau (CFPB).

How NSF Fees Work

NSF fees can occur if your bank offers overdraft protection, but you haven’t opted in. The bank won’t cover the rest of the transaction when this happens, resulting in an NSF fee. There are other situations where you might be charged an NSF fee, such as if you overdraw your account and you’ve already exceeded the bank’s overdraft protection limit.

Comparison of Overdraft Fees and NSF Fees

Overdraft fees and NSF fees are similar in many ways. The most notable difference between the two is whether the transaction goes through (overdraft) or not (NSF). The table below shows key distinctive features of each.

How Overdraft Fees and NSF Fees Compare

Overdraft FeeNSF Fee
Average Fee$35$34
Transaction goes throughYesNo
Charged until account has sufficient fundsYesNo
Can be avoided with overdraft protectionYesNo

How to Avoid Overdraft Fees and NSF Fees

NSF fees and especially overdraft fees can add up quickly. However, there are a few steps you can take to avoid them:

  • Check your balance regularly. You are more likely to overdraw your bank account if you don’t know how much you have. Check your balance regularly, such as weekly or each time you get paid.
  • Activate low balance alerts. You can set up a low balance alert and have your bank send you a text or email if your balance goes below a certain threshold.
  • Set up direct deposit. If you haven’t done so already, set up direct deposit with your employer. This will help you keep money flowing into your account.
  • Stick to a budget. Budgeting software and apps let you set limits on how much you’re able to spend. That will help you prevent overspending so you will (hopefully) always have the cash on hand you need.
  • Have an emergency fund. Having an emergency fund can be helpful in many ways. It lets you keep more cash on hand, so you won’t fully deplete your cash reserves when the unexpected happens.

Bottom Line

SmartAsset: Overdraft fees vs. NSF fees

Both overdraft fees and NSF fees occur when you try to spend more money than you have. The biggest difference is that the transaction still goes through with an overdraft. With an NSF fee, the transaction is canceled. While banks often charge fees when this happens, some waive these fees in some situations and others have abandoned them completely. Still, regularly monitoring your finances, including your checking account balance, is good practice. You can also set up alerts to let you know when your balance falls below a certain threshold.

Tips on Bank Accounts

  • A financial advisor can help you work through your banking needs and put together a plan that works for your unique situation. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you plan to open a bank account, be sure to check SmartAsset’s checking & savings guide. Some checking accounts are better than others; for example, some have monthly fees and minimum account balances. Be sure to research the best options before opening a new checking account.

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