NSF Fees vs Overdraft Fees: Understanding the Difference

LOS ANGELES, January 27, 2021 (Newswire.com) - Many consumers use the terms "NSF" and "overdraft" interchangeably, but they actually refer to different things. Understanding these terms can help you avoid fees when you come up short.

The best way to avoid either of these is to not write a check if the money isn't there to cover it, but it's easy to make an error while balancing your checkbook. The next best thing is to understand how to communicate with banks about these fees and avoid them in the future.

What does "non-sufficient funds" (NSF) mean?

Non-sufficient funds are exactly what they sound like. A check that you wrote hits the bank and there's not enough money to cover it. The bank refuses to cover the check and you are charged an NSF fee. The recipient gets a notice that the check was returned NSF.

This doesn't just happen with checks. It also occurs when you have automated payments being withdrawn from your account and come up short when the charge is due. This is actually fairly common, as consumers often forget about smaller monthly subscription fees.

If you have a good relationship with your bank, they may agree to waive the NSF fee if you call them and explain your situation. They may also be willing to put you on an overdraft protection plan (ODP) to ensure that you don't end up in the same situation again. 

What does "overdraft" mean?

An overdraft differs from non-sufficient funds because the bank will actually clear and pay the check, even if you don't have enough to cover it. They then charge you a fee, usually $25-$45, and notify you of the overdraft. The payee never knows that you did not have sufficient funds in the account.

Most banks offer overdraft protection (ODP) to their regular customers if requested. There are normally stipulations, like requiring direct deposit or a certain number of transactions per month. Participants in these programs usually don't have to pay overdraft fees.  

Another way that banks do this is to set up a loan account attached to your checking account. When you dip below a zero balance, money is loaned to you to cover the difference. This is common with banks and credit unions where you have your paycheck direct deposited.

Overdraft Protection during COVID-19

Financial distress from COVID-19 has caused many institutions to reevaluate how they handle overdrafts. Many major banks are offering coronavirus relief packages which include overdraft fee waivers, but you may have to be proactive about reaching out to get your fee waived.

Some of these institutions are also waiving annual and monthly fees. Keep that in mind if you're looking for a new bank to do business with.

Be careful with overdrafts and NSF. If your overdraft is over a certain amount (usually $750), no bank will cover it, even if you have ODP. For NSFs, too many of them could get you blacklisted be the National Check Protection Service (NCPS), making it impossible for you to cash checks. 

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.

Source: iQuanti, Inc.