{"id":19527,"date":"2023-09-23T16:00:00","date_gmt":"2023-09-23T16:00:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=19527"},"modified":"2023-09-27T15:34:18","modified_gmt":"2023-09-27T15:34:18","slug":"what-is-nsf-fee","status":"publish","type":"post","link":"https:\/\/businessyield.com\/finance-accounting\/what-is-nsf-fee\/","title":{"rendered":"WHAT IS NSF FEE? Overview and Comprehensive Guide","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n
Sammy issues a $1200 check to his plumber, not realizing that he had only $1000 left in his account. This leaves his bank with two options: cover the transaction and charge him a paid NSF fee, or return his check and charge him a returned item fee. What if Sammy signed up for automatic payment of his utility bills? Well, the payment can be returned using the ACH system in the case of insufficient funds.<\/p>\n\n\n\n
NSF stands for “non-sufficient funds.” It refers to the state of a checking account that doesn’t have enough funds to cover its transactions. When a customer issues a check that exceeds the amount in his checking account, the bank will stamp the check with “NSF,” indicating insufficient funds. The bank either pays the transaction or returns the check. The latter case is often termed “bouncing of the check.” In both cases, the bank issues a charge against the account holder. This charge is known as the NSF fee. It comes in form of a returned item fee, or a paid NSF fee.<\/p>\n\n\n\n
A returned item NSF fee is charged when your bank denies your transaction or returns your check. As explained above, this often occurs as a result of insufficient funds to cover the transaction. This fee is also known as a bounced check. This fee always results when you do not have overdraft protection. One disadvantage of returned item fee is that it can incur third party charges. <\/p>\n\n\n\n
It is important to note that a returned item NSF fee is quite different from an overdraft fee. A returned item fee is charged when a check is returned unpaid. In contrast, an overdraft fee is charged when the bank approves the transaction against an insufficient balance, which results in a negative account balance.<\/p>\n\n\n\n
You can avoid the returned item fee. Firstly, ensure you have enough funds in your account to cover your transactions. Furthermore, you can sign up for overdraft protection through your bank. This way, your bank can proceed to pay your transactions even if you have insufficient funds. However, this second option also comes with a fee.<\/p>\n\n\n\n
A paid NSF fee is charged, when there are insufficient funds to cover a transaction, but the bank pays it anyway. This often occurs when the customer has overdraft protection. If the customer has a second account, the bank overdraws from the account to complete the transaction.<\/p>\n\n\n\n
The amount charged for a paid NSF is almost the same as for a returned item. The major advantage of the paid NSF over the returned item is that the returned item may incur third-party charges.<\/p>\n\n\n\n
Let’s say that Sammy wants to pay his utility bills but doesn’t have enough funds in his account. If he does not have overdraft protection, the bank will deny his transaction and charge him a returned item fee. The utility company will, in turn, charge him a fee for the returned payment. However, if Sammy signs for overdraft protection, the bank will cover his transaction and charge him a paid fee. That way, he won’t have to pay the utility company again.<\/p>\n\n\n\n
Some transactions enable digital payments to be drawn from banks or credit unions. The accounts may have funds insufficient for the transaction. In this case, the bank will deny the payment and return it to the owner of the account through the ACH system. Consequently, the bank will charge the payer an ACH NSF fee. <\/p>\n\n\n\n
To explain how this works, let’s say a customer sets up automatic payments for his monthly utility bills. The utility company processes these bills through the ACH system and debits them from the customer’s checking account. If the amount in the account is insufficient for the transaction, the bank will deny the processor’s order to debit the account. The processor then transmits the information about the payment denial to the utility company that initiated the payment request. Consequently, the bank will charge the customer a returned item fee. In addition to this ACH NSF fee, the utility company will also charge him a fee for the returned item.<\/p>\n\n\n\n
An ACH overdraft fee occurs when an ACH debit creates a negative balance in the checking account. As you already know, a bank will not allow ACH transactions to create a negative balance and will deny payment if the customer did not sign up for overdraft protection. While ACH overdraft fees and ACH NSF fees usually are similar, having overdraft protection may avoid the inconvenience and negative ramifications of NSF returns<\/p>\n\n\n\n