Returned Item Fees: What They Are & How to Avoid Them

By Kelly Boyer Sagert · September 08, 2022 · 9 minute read

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Returned Item Fees: What They Are & How to Avoid Them

Returned item charges are bank fees that are assessed when you don’t have enough money in your account to cover a check, transfer, or other form of cash flowing out. In other words, you’re overdrawn and paying a price for it. This very common fee can raise a lot of questions for you: Am I in trouble? Will my credit score go down?

In this post, we’ll provide more information about how these returned item fees work, address your concerns (and hopefully allay some worries), and suggest ways to avoid having to pay these fees. Let’s go!

What Is a Non-Sufficient Funds (NSF) Fee?

You may be wondering, what is a returned item fee, exactly? You might hear this charge referred to as a non-sufficient fund fee or an NSF, which raises this question: What is an NSF fee? Do these two phrases mean the same thing? First, to answer that: Yes. These terms are used interchangeably and boil down to the same situation.

Now, let’s get to an explanation. These terms refer to times when someone does not have enough money in their checking account to cover checks, ATM withdrawals, transfers, and the like. When this situation arises, many financial institutions will charge a returned item or NSF fee. These are common fees that serve as a way for banks to make money. They are assessed because the bank has to put forth additional work to deal with this situation.

How Do Non-Sufficient Fund Fees Work?

Here’s a basic example. Let’s say that someone has $500 in the bank. They withdraw $100 from an ATM and forget to record that transaction. Then, they write a check for $425, believing that those funds are available:

•   Original balance: $500

•   ATM withdrawal: $100

•   New actual balance: $400

•   Check amount: $425

•   Problem: The check is for $25 more than what is currently available.

The financial institution could refuse to honor this check (or to use lingo, this check would “bounce” or is a “bad check”) and charge an NSF to the account holder. When you dip below a zero balance to a negative amount in your account, you are what’s known as overdrawn.

Are NSF Fees Legal?

Yes, NSF or returned item fees are legal. What’s more, no federal law states a maximum fee, leaving the amount charged up to each individual financial institution. According to the Office of the Comptroller of the Currency, banks are required to provide you with their fee policies when you open an account and when fees increase.

But, are you ready for this? They aren’t required to notify you when a check bounces. The account holder is responsible for accurately knowing their current balance and what outstanding checks or withdrawals exist.

See how this could lead to more than one returned item change:

•   Current balance: $500

•   First check written (but not recorded in the register): $250

•   Real balance: $250 (versus a perceived balance of $500)

•   ATM withdrawal: $300

At this point, the account holder believes they have $200 remaining, so they write a check for $175 and think they have a balance of $25. The ATM withdrawal goes through first. With a remaining balance of $200, the first unrecorded check bounces, quickly followed by the second. This can lead to two NSF charges. It adds up quickly!

Said another way, because the account holder forgot about writing the first check, they think this happened:

•   Original balance: $500

•   ATM withdrawal: $300

•   Remaining balance: $200

•   Second check: $175

•   Remaining balance: $25

Here’s what happens, though, at the bank:

•   Original balance: $500

•   ATM withdrawal of $300 comes through first

•   Remaining balance: $200

•   First check attempts to clear; because it’s for $250, it bounces with a fee assessed

•   Second check attempts to clear; the balance is below zero and it also bounces with a fee assessed

These NSF or returned item fees can be steep, but they serve as a good guardrail, encouraging you to stay on top of your bank balance and not get assessed these charges. In other words, getting hit with these fees can be a teachable moment.

Are NSF Fees Refundable?

You can always ask for a refund. If you’ve been with a financial institution for a while and this is your first NSF, you could contact the bank and ask for a refund. The financial institution may see you as a loyal customer that they don’t want to lose, so they may say “yes.” That said, it’s entirely up to them — and, even if they agree the first time, they will probably be less willing if it becomes a pattern. (Or, they may say “no” to the very first request.)

Do NSF Fees Affect Your Credit?

Not directly, no. Banking history isn’t reported to credit bureaus. Indirectly, however, these could hurt your credit. If the account holder doesn’t cover the negative balance in the account, the financial institution could send the person to a collection agency — and this information could appear on a credit report and damage the person’s credit scores.

Plus, if you want to open a new account, a financial institution may check what’s called your ChexSystems report, and any returned item fees will show them your banking history. If it’s not looking up to par, the new bank could choose to reject you for a new account.

Also consider this. If a check bounces — say, one to pay your mortgage, car payment, credit card bill, or personal loan — this may cause that payment to be late. If payments are at least 30 days late, loans and credit cards can be reported as delinquent, which can hurt your credit.

What Happens if You Don’t Pay Your NSF Fees?

As noted above, if an account holder doesn’t cover a negative balance in their account, the bank could send them to a collection agency. If this information appears on their credit report, it can hurt the person’s credit scores and affect their ability to borrow in the future.

How Much Are NSF Fees?

NSF fees, when charged, can typically range between $27 and $35 per incident, with $30 being a common amount. Financial institutions get to set this fee. So, if your bank charges a high one, consider shopping around.

When Might I Get an NSF Fee?

NSF fees can be charged when there are insufficient funds in the account to cover a check, transfer, or withdrawal as long as the bank’s policy includes those fees.

What’s the Difference Between an NSF and an Overdraft Fee?

An NSF fee can be charged if insufficient funds exist in an account to cover a transaction and no overdraft protection exists. The check or transfer or other transaction will not go through, and the fee will be charged. Some financial institutions, though, do provide overdraft protection. If so, when there are insufficient funds in an account, the bank would cover the amount (which means there is no bounced check), and then the financial institution may charge an overdraft fee. So with overdraft, the transaction you initiated does go through; with an NSF or returned item situation, you need a do-over. Fees are assessed, however, in both scenarios.

How to Avoid NSF Fees

There are ways to avoid overdraft fees or NSF fees. Here are seven strategies.

Closely Watch Your Balances

If you know your bank balance, including what’s outstanding in checks, withdrawals, and transfers, then a NSF situation shouldn’t arise. A mobile app or other online access to your accounts can streamline this process of checking your account. Try to get in the habit of looking every few days or at least once a week.

Keep a Cushion Amount

In this strategy, you always keep a certain dollar amount in your account that’s above and beyond what you spend. If it’s significant enough, a minor slip up still shouldn’t trigger an NSF scenario.

Set Up Automatic Alerts

See if your financial institution will allow you to set up a low balance alert. If so, when you create one, you’ll know when the account balance falls below a certain dollar amount. You can then be extra vigilant and take steps when needed to ensure that nothing bounces.

Link to a Backup Account

Your financial institution may allow you to link, for example, your savings account to your checking account. If so, should the checking balance go below zero, they’d transfer funds from your savings account to cover the difference.

Use Debit Cards Strategically

If you use your debit card to rent a car or check into a hotel, they may place a hold on a certain dollar amount to ensure payment. It may even be bigger than your actual bill. Depending upon your account balance, this could cause something else to bounce. So be careful in how you use your debit cards.

Address Your Funds Shortage

If, for example, you’re in a short-term situation where funds are tight, consider getting a personal loan to free up your cash flow. Investigate lender tips to help get your loan approved more quickly to ease that cash crunch.

Look for No-Fee Overdraft Coverage

Shop around for a bank with no-fee overdraft coverage (here at SoFi, we’ll cover you for up to $50).

The Takeaway

Returned item fees (also known as NSF fees) can be charged when insufficient funds exist in an account to cover your checks, transfers, and withdrawals. While these are common charges, they can get costly and can indirectly lead to credit issues. It’s worthwhile to take them seriously and let them inspire you to stay on top of your bank account and not dip into overdrawn territory. You’ll avoid the fees and enjoy the peace of mind!

We can help you bank better: online banking with SoFi is a great fee-free way to manage your money. We don’t charge monthly fees, minimum balance fees, and we’ll cover you for $50 in overdraft when you sign up with direct deposit. And we offer a super competitive APY so your money earns interest that much faster.

Better banking is here with up to 4.60% APY on SoFi Checking and Savings.


What happens when you get an NSF?

This means that a financial transaction has bounced because of insufficient funds. You will owe the fee that’s listed in your bank’s policy.

Is an NSF bad?

If a financial transaction doesn’t go through because of insufficient funds, then this can trigger returned item charges (NSF fees). This means you’re paying a fee for being overdrawn, a scenario and expense that you’d ideally want to avoid.

Does an NSF affect your credit?

Directly, no, because this information isn’t reported to credit agencies. If the negative balance isn’t appropriately addressed or if the NSF involves a bounced payment for a bill, these can lead to credit score drops. Plus, a banking history with NSF transactions may make it more difficult to open new bank accounts going forward.

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