# Non-Sufficient Funds (NSF): What It Means & How to Avoid Fees

![Non-Sufficient Funds (NSF): When a bank account does not have enough money to cover a payment.](https://www.investopedia.com/thmb/FNxSye1oipMq9VepVpgX3TTCR5E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/nsf.asp-final-a7e7d586f4cf43abb81b03a6247d8517.png)

*— Investopedia / Theresa Chiechi*

> **Definition**
>
> Non-sufficient funds (NSF) occur when your bank account lacks the cash to meet a transaction, leading to declined payments and fees. This article explains NSF, contrasts it with overdraft occurrences, and offers tips to prevent these costly fees through budgeting, account monitoring, and linking accounts for overdraft protection.

## What Are Non-Sufficient Funds (NSF)?

Non-sufficient funds (NSF), or insufficient funds, is the status of a checking account that does not have enough money to cover all transactions. NSF also describes the fee charged when a check is presented but cannot be covered by the balance in the account. 

Customers will see a “non-sufficient funds” or “insufficient funds” notice on a bank statement when attempting to withdraw more money than their account holds.

When a payment can't be completed, it's often called "bounced." If a bank gets a check from an account without enough funds, it can refuse to pay and charge an NSF fee. The merchant may also charge a fee for the bounced check.

### Key Takeaways

*   Non-sufficient funds (NSF) occur when a checking account lacks sufficient money to complete a transaction, leading to fees.  
    
*   NSF fees typically average $34 and can be avoided by signing up for overdraft protection or linking multiple accounts.  
    
*   Overdraft fees are charged when the bank covers a transaction causing the account to go negative, unlike NSF fees, which are charged when payments are declined.  
    
*   Criticism of NSF fees includes practices like charging multiple fees for the same transaction, leading the CFPB to pressure banks to eliminate these fees.  
    
*   Monitoring account balances and setting low-balance alerts can help consumers avoid both NSF and overdraft fees.

## Understanding How NSF Fees Are Charged 

Banks often charge NSF fees when a presented check is returned or payment cannot be made due to a lack of funds to cover it. According to 2022 data from the [CFPB](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp), NSF fees average $34 each.

When a payee deposits a check, the bank must make the funds available within two business days. If funds are not available from the payer's bank account, it is deemed as insufficient and an NSF fee is assessed.

Banks offer several ways for account holders to avoid penalties for insufficient funds. Customers can opt out of overdraft policies or link a savings account or credit card to cover shortfalls.  

> **Important**
>
> In 2023, the CFPB issued a report saying it found numerous financial institutions charging multiple NSF fees for the same transaction, potentially as soon as the next day. While this is not illegal, the CFPB said that consumers could not reasonably avoid the penalties—for which some institutions reaped millions of dollars in fees—and that the fees weren't justified by benefits to consumers or competition. As a result, nearly all of the banks and credit unions the CFPB engaged with provided plans to stop charging NSF fees altogether.

## Comparing NSF Fees and Overdraft Fees

Non-sufficient funds and overdrafts are two distinct bank transactions. Both relate to insufficient funds and can trigger fees. Banks charge NSF fees when they return presented payments without payment, like a check, and overdraft fees when they accept and pay the checks that overdraw checking accounts.

A customer with $100 in their account might make a $120 purchase using [ACH](https://www.investopedia.com/terms/a/ach.asp) or electronic check. If the bank refuses to pay, an NSF fee is charged. If the bank accepts the check and pays the seller, the checking account balance falls to –$20 and incurs an overdraft (OD) fee. 

Banking customers often have the option of overdraft protection. If a customer with $20 tries to make a $40 purchase without overdraft protection, the transaction will be declined.

If the customer has OD protection, the transaction may be accepted, and the bank may assess an OD fee. However, if the customer wrote a check for the $40 transaction, the bank may honor it and assess an OD fee or reject it and assess an NSF fee, regardless of whether or not the customer has joined the overdraft program.

## Strategies to Prevent NSF Fees

*   Properly budget for monthly payments
*   Avoid intentionally writing a check or making a payment for more than the current checking account balance.
*   Monitor account balances, debit card transactions, and automated payments.
*   Link multiple accounts like a checking and a savings account so the money will automatically move from one to the other to cover shortfalls.
*   Look to banks for overdraft lines of credit, a special product to apply for to cover any issues with insufficient funds. An overdraft line of credit requires a credit application, which considers a customer's credit score and credit profile in determining approval.

> **Tip**
>
> Many banks let you set up low-balance alerts, sending a notification if your funds drop below a set amount. That can help you keep track of how much money is currently available, and you can adjust your spending accordingly.

## Controversies Surrounding NSF Fees

The CFPB oversees and protects consumers while using financial services. In 2010, sweeping bank-reform laws addressed overdraft and NSF fees and implemented guidance allowing consumers to opt for [overdraft protection](https://www.investopedia.com/terms/o/overdraft-protection.asp) through their banks. More protections for consumers become increasingly urgent as financial institutions mishandle fee policies.

Financial institutions have reordered transactions, processing debits to consumer accounts in a way to maximize overdraft fees by deducting the largest first, rather than in chronological order. In 2011, Bank of America settled a two-year-old class action for $410 million for reordering customer transactions and charging overdraft fees in this way. TD Bank paid over $62 million in a class action settlement for the same mismanagement of fees in 2010.

In 2020, the Bank of Hawaii set up a settlement fund of $8 million to repay clients who had been charged for authorized customer payments while funds were available, but settled the debits once the accounts moved to an insufficient status and charging fees. The bank agreed to forgive overdraft fees that remained unpaid.

Financial institutions have practiced single transaction, multiple fee activity, assessing more than one NSF fee on a single item or transaction if the payment request is automatically re-submitted repeatedly by the creditor. In 2020, the Navy Federal Credit Union settled such a case for $16 million, without conceding any wrongdoing or liability.

This was followed by the 2023 CFPB report that found a number of banks and credit unions had engaged in similar actions as Navy Federal. The institutions then said they would reimburse wronged consumers and issued plans to stop charging any NSF fees.

## Frequently Asked Questions

## Why Do Banks Charge an NSF Fee?

Banks charge NSF fees for the cost and inconvenience of having to return declined checks. "For many, overdraft/NSF fees have emerged as the No. 1 generator of fee income and is one of the bank’s most profitable sources of revenue," a Woodstock Institute report noted, quoting _American Banker_.

## Are NSF Fees Legal?

Yes, NSF fees are legal on bounced checks and should not be charged on debit card transactions or ATM withdrawals. The U.S. government doesn't regulate NSF fees or the size of fees but The Truth in Lending Act does require banks to disclose their fees to customers when they open an account.

## Can an NSF Fee Be Waived?

Bank policies vary, but an NSF fee can often be waived through an NSF reversal after the fact, especially if it's the first time that it's been assessed. Calling the bank's customer service line and requesting a refund is the best course of action for a consumer.

## Do NSF Fees Affect Your Credit?

NSF fees don't affect a customer's credit or credit score directly because banks do not report the transactions to [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp) such as Equifax, TransUnion, and Experian.

However, a bounced check can make delay a credit card or loan payment which [may affect a customer's credit score](https://www.investopedia.com/ask/answers/081414/how-does-bouncing-check-affect-my-credit-score.asp).

## What Happens If I Don't Pay My NSF Fees?

Customers don't have an option to avoid paying NSF fees, as the bank automatically deducts them from the account.

## The Bottom Line

Non-sufficient funds (NSF) fees can be costly and frustrating for consumers when a bank account lacks the funds to cover transactions. They remain a legal practice, although scrutiny has led to some institutions eliminating or reducing these fees. To avoid NSF charges, consumers should closely monitor their account balances, consider linking backup accounts, and explore overdraft protection options offered by their banks. Additionally, setting up low-balance alerts can help maintain sufficient funds and prevent unexpected fees.

> **Article Sources**
>
> 1.  Consumer Financial Protection Bureau. "[Consumers on Course to Save $1 billion in NSF Fees Annually](https://www.consumerfinance.gov/about-us/blog/consumers-on-course-to-save-one-billion-in-nsf-fees-annually-but-some-banks-continue-to-charge-them/)."
>     
> 2.  Consumer Financial Protection Bureau. "[Supervisory Highlights Junk Fees Special Edition](https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights-junk-fees-special-edition_2023-03.pdf)." Pages 5-6.
>     
> 3.  Consumer Financial Protection Bureau. "[CFPB Study of Overdraft Programs: A White Paper of Initial Data Findings, June 2013](https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf)," Pages 5, 19, and 27-30.
>     
> 4.  Cohen & Malad. "[Class Action Bank Fee Lawsuits](https://www.cohenandmalad.com/practice-areas/class-action/overdraft-fee-class-action-lawsuits/)."
>     
> 5.  Bank of Hawaii. "[Smith v. Bank of Hawaii Settlement](http://bankofhawaiioverdraft.com/)."
>     
> 6.  Credit Union Times. "[Navy Federal Settles Non-Sufficient Funds Fee Lawsuit for $16 Million](https://www.cutimes.com/2020/11/23/navy-federal-settles-non-sufficient-funds-fee-lawsuit-for-16-million/)."
>     
> 7.  Woodstock Institute. "[Reinvestment Alert: Banking on Bounced Checks: Federal Proposal on Bounce Protection Still Exposes Consumers to Hidden Bank Fees](https://www.fdic.gov/news/events/affordable/woodstock1.pdf)," Page 5.