You swipe your card, or a check clears, or a bill draft hits your account. The balance is too low. What happens next depends on what kind of payment it is and what you agreed to with your bank. The bank either pays the item and charges an overdraft fee, or it turns the payment down and may charge a non-sufficient funds fee. Most people call that second one an NSF fee.

Hands sorting paper statements at a kitchen table in soft morning light, beside a mug.
Sorting the month's paperwork at the kitchen table.

What overdraft and NSF fees are

Both fees show up when a checking account does not have enough money to cover a payment. The difference is what the bank does with the payment.

An overdraft happens when the account lacks the money and the bank pays anyway. Under an overdraft protection program, the bank covers the payment and charges a fee. The merchant gets paid. Your balance drops below zero.

An NSF fee is the charge a bank or credit union may apply when it declines a payment because of insufficient funds. The source we used says this can depend on the bank's opt-out policy. So the same empty balance can lead to different results at different banks. Your account agreement is the place to check.

In short, an overdraft fee goes with a payment that went through. An NSF fee goes with a payment that was turned down. Either way, the account was short, and either way, a charge may follow.

When banks can charge these fees

The rules depend on the type of payment. The Consumer Financial Protection Bureau explains them in its Ask CFPB article on overdraft fees. For one-time debit card purchases and ATM withdrawals, a bank cannot charge an overdraft fee unless you opted in. No opt-in means no overdraft fee on those payments.

Checks and recurring electronic payments work differently. A bank may charge an overdraft fee on those even if you never opted in to anything. Some people may assume that saying no to debit card coverage covers everything. According to the CFPB, it does not.

Some banks let you opt out of overdrafts on checks and recurring payments. That helps, but it may not end the charges. If the bank declines the payment, it may still charge an NSF fee. The CFPB notes this fee is often the same amount as an overdraft fee. So opting out may change the label on the fee without removing the cost.

There is one more cost to watch. When a payment is declined, the merchant may add its own returned item fee. That is separate from anything your bank charges. A single missed bill could mean two charges from two different parties.

Questions to ask and steps you can take

Start with your own account. Find out whether you ever authorized overdraft protection for debit card purchases and whether it is turned on now. Your bank can tell you, and your account disclosures may say too.

If it is on and you do not want it, you can decline it. According to the CFPB, you can withdraw from an overdraft protection program at any time by notifying your bank or credit union. Declining coverage for debit card and ATM transactions means those payments get turned down at the register instead of triggering a fee. That can be awkward in line at a store. It is also a lot cheaper than a fee.

Then ask your bank a few direct questions:

  • Can I opt out of overdrafts on checks and recurring payments?
  • If I do, what NSF fee applies when a payment is declined?
  • Could a merchant also charge me a returned item fee?

One red flag deserves action. If you were charged a debit card overdraft fee and you do not believe you opted in, you can file a complaint with the CFPB. The sources we reviewed do not describe any other way to dispute a fee or get a refund, so ask your bank what its process is.

Costs and who pays most

These fees add up. A CFPB data spotlight estimated that bank and credit union customers in the United States paid about $15 billion in overdraft and NSF fees in 2019. That is the only national total in our sources. We do not have a newer one.

The cost does not fall evenly. The same CFPB report says people with lower balances, or with income and expenses that swing from month to month, may pay hundreds or even thousands of dollars in these fees in a year. It also says they may face financial hardship or account closure.

We cannot give you current dollar amounts. The sources we used do not list them, and fees vary by bank. Nor do our sources explain how state law or individual bank policies differ beyond the federal opt-in rule. Treat any single number you see online as a starting point, not a promise about your own account.

The practical step is simple. Pull up your bank's fee schedule and your account agreement. Look for the overdraft fee, the NSF fee, and any limit on how many can be charged in a day. Write the numbers down next to your bill due dates. Those numbers are yours to find, and they are the ones that count.

Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.