What Are NSF Fees and Why Do Banks Charge Them?
The bank world can be confusing and understanding the ins-and-outs of that world is extremely important in order to prevent yourself from running into any extra fees or charges. Some of those extra charges can include NSF fees, which are often charged to customers who overdraw their checking accounts due to an unplanned spending event or an accidental oversight. Knowing what an NSF fee is and why banks charge them can help you avoid any charges to your accounts.
What Is an NSF Fee?
NSF fees are also known as non-sufficient fund (NSF) charges. They’re a fee that many banks charge when you either don’t have the money in the bank to cover an item presented for payment or you’re trying to overdraw your account. This fee can be charged when your account doesn’t have enough money to cover the presentation of an item for payment due to an error you made or if money was never there in the first place.
NSF fees are charged to make up for a customer’s error or negligence when it comes to paying off or covering items withdrawn or deducted from their bank accounts. These fees can range from $20 all the way up to $40, depending on which bank and their policies.
When an NSF fee is charged, the bank typically deposits the funds that the customer tried to withdrawal, however the customer is still in the negative and will be charged the fee amount as a penalty for trying to overdraw their account.
Why Do Banks Charge NSF Fees?
Banks charge NSF fees as a penalty to customers who try to hop into their accounts and take funds when they’re not entitled to them. The bank wants to make it clear that if a customer fails to keep track of their funds and their transactions, they can and will be penalized.
Additionally, banks charge NSF fees to cover the cost associated with processing NSF transactions. Every time a customer makes a transaction and the bank has to collect fees, it cost the bank money. That’s why they pass the burden onto customers who fail to manage their accounts properly.
Avoiding NSF Fees
At the end of the day, you should try and avoid NSF fees as much as possible. Banks use a variety of systems and federal regulations to ensure you can monitor your money and keep track of your account balance. Being informed and monitoring your account activity can help you avoid potential NSF fees.
Here are some ways how you can avoid NSF fees:
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Balance Your Checkbook: Keeping a current record of deposits and withdrawals can help you know when you need to deposit more money and when you should avoid withdrawing from your account.
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Sign up for Alerts: Banks will typically allow you to customize your notifications so you can be alerted when your account is about to become overdrawn.
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Link Your Accounts: Linking your accounts together will help keep a tab on your money and can be a very beneficial way of improving your financial literacy.
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Opt in for Overdraft Protection: Some banks offer overdraft protection, which can help protect you from going into the negative.
NSF fees can be a hassle, as not many people want to be charged for making a mistake. But understanding what an NSF fee is and why banks charge them is the first step toward preventing yourself from picking up the bill on their end.
For most, it’s just a matter of being informed and managing their accounts responsibly. Something as easy as keeping a checkbook and gaining better financial literacy can mean the difference between paying an NSF fee and not having to pay it.
With this knowledge and the few tips given, you should be set up with the tools you need to avoid any NSF fees.