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- Overdraft and non-sufficient funds fees occur when you overdraw from a checking account.
- You'll pay an overdraft fee when the bank covers your overdraft so your transaction can go through.
- You'll pay a non-sufficient funds fee when you overdraw but the bank denies your transaction.
You'll want to be mindful of your account balance when you have a checking account. If you make a purchase that results in a negative balance, you might end up having to pay an overdraft or non-sufficient funds fee.
We'll explain the differences between these types of checking account fees and how to avoid them.
Overdraft fee vs. non-sufficient funds fee: At a glance
Many banks have a limit — usually around $5 to $50 — on how much money you can overdraw from your checking account. Overdraft or non-sufficient funds fees may occur when you don't have enough money in your checking account, and you pass that limit.
The main difference between overdraft fees and non-sufficient funds fees is how your bank processes the transaction.
- A bank charges an overdraft fee when it covers the overdraft, so your transaction goes through.
- A bank charges a non-sufficient funds fee when it denies a transaction on your checking account.
What is an overdraft fee?
When you open a checking account, you'll generally be asked whether you would like to opt for an overdraft privilege. Overdraft privilege can authorize the bank to pay for some transactions — for example, debit card or ATM transactions — when you overdraw from your checking account.
Banks can charge an overdraft fee once your transaction goes through, anywhere from $10 to $38. If you make multiple transactions on the same day, you also could get charged several times for overdraft fees.
Some banks may also have an extended overdraft fee if your account has a negative balance for a couple of days. An extended overdraft fee can be around $10 to $15.
If you opt out of the overdraft privilege, your transactions will be denied when you don't have any money in your account. You'll have to read your bank account agreement and schedule of fees from your financial institution to see if other fees may apply for specific types of transactions.
What is a non-sufficient funds fee?
Non-sufficient funds fees can happen when you have a transaction that doesn't get processed by your bank. For example, a bank may charge a non-sufficient funds fee when a check bounces or a bill payment doesn't go through.
Non-sufficient funds fees are usually the same amount as an overdraft fee. However, keep in mind you also might have to deal with fees from other companies if your transaction is denied. For example, if a check doesn't go through, you might also have to pay late fees to the company you're trying to pay.
How to avoid overdraft fees and non-sufficient funds fees
There are several ways to avoid paying overdraft and non-sufficient fund fees. Here are three tips.
Consider whether your spending aligns with where you're keeping your money
To avoid fees on your checking account, Kevin Mahoney, a CFP professional and the host of Financially Well, recommends focusing on where you're keeping the money that you are spending and earning.
You might realize that you need to deposit more into your checking account each month instead of your savings account. Changing up your spending and savings structure could be one way to help avoid overdraft fees.
See if your bank has overdraft protection that's suitable for you
Another way to avoid overdraft and non-sufficient funds fees is to see if your bank offers an overdraft protection plan that's a good match for you.
"Having that protection program is typically a net benefit for people and better than not having it," says Mahoney.
Some banks offer overdraft protection plans that link your checking account to a savings account, or let you apply for a line of credit. When you overdraw from your account, many banks will not charge you a fee for the transfer. Others may charge a fee, but it will be less than an overdraft fee or non-sufficient funds fee.
Several national banks, like Citizens Bank and Wells Fargo, also provide reimbursements if you restore your account to a positive account balance within the same day.
Switch to a bank that doesn't charge overdraft or non-sufficient funds fees
There are financial institutions that do not charge overdraft or non-sufficient fund fees. Our best free checking accounts guide includes some online banks and credit unions that do not charge these fees.
What happens if you don't pay overdraft fees or non-sufficient fund fees?
If you do not pay overdraft or non-sufficient funds fees, your bank can report this information to ChexSystems, a national consumer reporting agency. A financial institution can also close your bank account. The bank account agreement dictates when a bank can close your account.
When you experience an involuntary account closure, this could also impact your ability to open future checking accounts at other banks. However, you can still qualify to open a second chance checking account.
A second chance checking account does not review your previous banking history. But you usually won't get debit cards or checks with a second chance checking account so that you can't overdraw from it. The purpose of a second chance checking account is to build back your credit ability and eventually be able to open a traditional checking account.