Overdraft and non-sufficient funds (NSF) fees have a lot in common. Both fees are triggered when there’s not enough money in an account to cover a transaction, and both can be avoided with practice.
But the reason behind each fee is slightly different. Read on to learn about the difference between overdraft and NSF fees, and the best ways to avoid them altogether.
What Are Overdraft Fees?
When a bank account balance is negative (meaning transactions exceed deposits), the account holder is often charged an overdraft fee. The transaction goes through, but the account holder owes the bank the cost of the transaction to bring the account back to zero, as well as the overdraft fee set by the bank.
Typically, overdraft fees will continue with each transaction until an account’s balance is out of the red. That means if an account holder is unaware of the overdraft and goes on using the card without making a deposit, they could be hit with a fee for each charge, no matter how small.
The average overdraft fee is $25, which can add up quickly when someone isn’t paying attention to their checking account balance.
How Do Overdraft Fees Work?
Overdraft policies vary from bank to bank, but typically they kick in when a debit card or checking account transaction exceeds the amount held in a bank account.
When the transaction goes through, the bank has a few choices:
• If the account holder has opted for a tool like overdraft protection, they may be shielded from overdraft fees up to a certain amount
• If the account is in good standing, or if the account holder has never over drafted before, the bank may choose to waive overdraft fees in this instance
• If the account holder has a history of over drafting, or is relatively new, the bank may choose to charge the overdraft fee
When You Could Get Hit With an Overdraft Fee
It’s not just debit card purchases that can set off an overdraft fee. If the account holder doesn’t have enough cash in their checking account, any of the following transactions could lead to an overdraft fee:
• ATM withdrawals
• Checks
• Autopay bill payments or withdrawals
• Transfers between bank accounts
As mentioned above, once an account holder overdraws, the bank may continue to charge subsequent overdraft fees on the account until the balance is restored through a deposit.
Recommended: How to Avoid Overdraft Fees
What Are NSF Fees?
On the surface, it’s hard to tell the difference between overdraft and NSF fees. Both fees occur when an account doesn’t have enough cash to cover a transaction.
However, an NSF fee is charged when an account doesn’t have enough money to cover a transaction and the transaction is canceled or rejected.
The average NSF fee is $30, but some banks charge as much as $40.
How Do NSF Fees Work?
An account holder might trigger an NSF fee instead of an overdraft fee if they:
• Opt out of or never signed up for overdraft protection
• Already exceeded the bank or credit union’s overdraft protection limit
• Write a check that’s more than the balance of the account
When You Could Get Hit With an NSF Fee
NSF fee policies vary by banking institution, but an account holder is more likely to be charged in the following situations:
• Check writing. When someone writes a check for more than the account’s balance, the check “bounces,” and the transaction won’t go through. The account holder will be charged an NSF fee by their bank, and they may be charged an additional fee by the bank or entity that tried to cash the check.
• ACH payments. An ACH payment, or Automated Clearing House Network payment, can be an easy way to transfer money or pay someone, but if the transferring bank doesn’t cover ACH payments, the transaction could be canceled and the NSF fee charged.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
What Are the Differences Between Overdraft and NSF Fees?
NSF and overdraft fees are commonly lumped together as general bank fees, but they are not the same. Here’s the difference between overdraft and NSF fees:
| NSF Fee | Overdraft Fee | |
|---|---|---|
| Average Fee | $30 | $24.94 |
| Transaction goes through? | No | Yes |
| Charged repeatedly until corrected? | No | Yes |
| Can it be avoided through overdraft protection? | No | Yes |
Tips for Avoiding Overdraft and NSF Fees
Overdraft and NSF fees are frustrating for many people because they fall into the category of bank fees you should avoid — and you can easily do so with a few simple practices.
1. Setting Up Email and Text Alerts
Many banks and credit unions offer email and text alerts that account holders can set up to notify them of low balances. For example, an account holder could set up an alert when their checking account balance falls below a certain amount.
With enough notice, account holders have time to transfer money into the account to cover upcoming charges or auto-debits.
2. Utilizing Direct Deposit
Setting up direct deposit with an employer means paychecks go directly to a bank account on payday. It’s a nearly immediate payment, opposed to waiting for a check by mail then depositing it at the bank. This could save someone from overdraft fees, especially if paychecks and major bills occur at regular intervals.
3. Having a Savings Cushion to Prevent Overdraft
Keeping a healthy cushion in a checking account can prevent it from dropping dangerously low. While it’s not best practice to keep tons of extra cash in a checking account (as these accounts often have low or no interest), keeping a few hundred extra in the account could keep someone from overdrafts when they need to make a transfer or forget about a check they wrote.
4. Checking Finances Regularly
While automation can help, nothing beats a regular check-in. Consider reviewing account balances at least once a week. It’ll help keep those numbers in mind when a large transaction or purchase comes up.
Recommended: Is Overdraft Protection Worth It?
5. Utilizing a Budgeting App
Keeping a budget is an important part of financial wellness. Not only does it involve knowing the balance of bank accounts, but it can also prevent people from over- or unnecessary spending that sends an account into overdraft. Some budgeting apps come with alerts to notify users when account balances are low.
Banking With SoFi
It’s easier to avoid overdraft fees at some banks than others. SoFi’s online bank account offers no-fee overdraft coverage and faster direct deposit, making it simple to help avoid unnecessary charges.
FAQ
What is the difference between overdraft and non-sufficient funds fees?
The difference between overdraft and NSF fees is the success or failure of the transactions. Overdrafting will allow the debit to clear. With an NSF, sometimes called a bounced check, the transaction does not go through.
Is an overdraft fee or an NSF fee more expensive?
Both overdraft and NSF fees hover around $30 to $35, on average.
How can you avoid overdraft and NSF fees?
You can avoid overdraft and NSF fees by keeping a close eye on bank account balances and choosing a bank that offers overdraft protection or forgiveness.
Photo credit: iStock/Ivan Pantic
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
SOBK0622002
