Overdraft fees vs. non-sufficient funds fees

Making a payment with a debit card, check, or bank transfer can sometimes lead to fees if the amount being spent is more than the bank account holds. These fees are typically known as overdraft and non-sufficient funds (NSF) fees.

Read on to understand these fees and for tips on how to navigate them effectively.

What is an overdraft fee?

An overdraft fee is charged when a debit card transaction or check exceeds the available funds in an account. While average overdraft fees hover around $26, they can be as high as $39 for certain banks.¹

Some financial institutions offer overdraft protection programs to cover these shortfalls, which could prevent the transaction from being declined. However, this service typically involves per-transaction fees.

What are non-sufficient funds fees?

NSF fees occur when a bank refuses a transaction due to insufficient funds in an individual's account. This fee can be charged by both the depositor's bank (for attempting the transaction) and the recipient's bank (for the failed payment).

Typically, NSF fees are reflected on account statements within a few days of the transaction attempt. It’s important to monitor account statements closely to understand the timing and impact of these fees.

How to potentially avoid overdraft and NSF fees

Avoiding overdraft and NSF fees is possible. Keep these tips in mind:

• Monitor account balances regularly. Keeping a close eye on account balances can help prevent transactions that could lead to overdraft or NSF fees.
• Set up low-balance alerts. Many banks send notifications when an account balance falls under a certain threshold. Some debit cards provide real-time spending alerts to help individuals prevent overspending and avoid bank fees as well.
• Explore overdraft protection. Overdraft protection prevents transactions from being declined, but it may come with fees of its own.
• Link a savings account for overdraft coverage. Linking a checking account to a savings account can be an effective way to avoid overdraft fees.

Build healthy banking habits

Proactive money management — including active budgeting, automating transfers to cover shortfalls, and regularly reviewing statements — is key to preventing unnecessary overdraft and NSF fees.

Learn about managing money with PayPal.