When you don't have the money for a purchase but still try to pay for it, you'll be hit with either an NSF fee or an overdraft fee. You may be wondering what these fees are and what they mean for your bank account. Let's dive deeper into the ins and outs of NSF fees and overdraft fees, along with some tips on how to avoid them in the future.

What is an NSF fee?

Banks apply a non-sufficient funds fee, or NSF fee, when you make a transaction you can't pay for. First, they'll reject this transaction, and then they'll apply an NSF fee to your account. With an NSF fee, you'll still be expected to pay the fee even though your transaction didn't go through. NSF fees are also applied per transaction, so if you make multiple transactions that exceed your account balance, you'll receive multiple fees.

What is an overdraft fee?

Similar to an NSF fee, an overdraft fee occurs when you don't have the money for a purchase, but you try to make that purchase anyway. But in this case, the bank will pay for the purchase and charge you a fee in turn. Banks will typically consider an overdraft fee as a part of a service they provide to your debit card or checking account, known as overdraft protection.

NSF fees vs. overdraft fees

Both NSF fees and overdraft fees happen when you make a transaction with insufficient funds. But with an overdraft fee, the transaction will still occur, and the payee will be none the wiser. With an NSF fee, the transaction will not go through, and you will still be charged a fee. NSF fees and overdraft fees cost typically around the same amount, but these amounts can vary from bank to bank.

How can I avoid NSF fees and overdraft fees?

One way to avoid NSF fees and overdraft fees is to have sufficient money in your checking account. Secondly, budget responsibly and monitor your checking account so you don't make any purchases you can't afford.

If you have to pay expenses like utilities and rent, but don't have sufficient funds, another strategy is to take out a personal loan. A personal loan can provide you with the immediate cash flow needed to pay your expenses and avoid NSF and overdraft fees.

The bottom line

No one wants to deal with extra fees, especially if your checking account is low on funds. By understanding what situations will incur NSF and overdraft fees, you can use strategies like budgeting or personal loans to avoid these situations in the future. That way, you won't find yourself in a situation where you're being penalized for transactions you can't afford.

Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.

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