If there’s one thing that the average American needs to achieve financial independence, it’s a bank account. This is often one of the first lessons many people learn in personal responsibility from the time they are teenagers hired for their first job. As beneficial as bank accounts are to establishing oneself as a young adult, though, they can come with sneaky fees that could pile up if you aren’t watching closely. Overdraft and insufficient funds (NSF) fees are some of the trickiest ways banks and credit unions make money. If you’re new to a bank or credit union though, it’s important to have a solid understanding of how and when your financial institution will charge you an overdraft or NSF fee.

Overdraft Fees

These fees are extremely similar, so it’s easy to confuse how and when you may be subjected to one.

Overdraft fees are charges your bank or credit union imposes on your account if your institution approves a transaction that is more than what you currently have available in the account. The transaction will still be paid, but you will be charged an additional fee for overdrawing your account. Some banks will not charge a fee if the amount overdrawn is less than five dollars, but this is by no means a rule. Check your bank account agreement to determine how much your particular bank or credit union charges for overdraft fees.

Because your institution approves the transaction (i.e. your card won’t get declined to let you know something is wrong), you may end up accruing multiple overdraft fees in one day without realizing. This is what can often get unsuspecting consumers in trouble. Some institutions also have a daily overdraft limit on the number of times they can charge you, but this varies by bank.

A common example of overdraft fees driving up the cost of simple transactions and potentially causing even more overdraft fees is the $40+ cup of coffee. Let’s say you decide to treat yourself to a fancy coffee from a local shop that comes out to $7.00. The bank approves your card transaction and you enjoy your coffee. Later, your bank account may shock you. Because you may have forgotten to transfer extra coffee money to your account, you overdrew and your bank slapped you with a $35.00 overdraft fee, turning that simple $7.00 coffee into a $42.00 cup. If you happened to buy lunch that day or run to the supermarket as well, you could be looking at more than $100.00 in additional fees.

NSF Fees

Your bank posts NSF fees to your bank account if the institution declines a transaction because you lack the funds in your account to cover the amount. These fees are often imposed if the amount of the transaction is significantly more than what is available in the account – such as for rent, mortgage, or large purchases. Additionally, while the bank may charge an NSF fee, the vendor that received the “bounced check” can also charge the account holder a fee, doubling the trouble.

NSF fees are typically the same or similar amounts to your bank’s overdraft fees, so read through your institution’s bank account agreement. Banks may also categorize NSF fees and overdraft fees together as “overdraft fees” in their agreements.

Because banks rely on their own decision to approve or decline transactions, they may only charge either an overdraft or an NSF fee, never both for the same transaction.

Safeguard Your Finances

Banks and credit unions can use their tricky overdraft and NSF policies to take advantage of consumers who may already be struggling to make ends meet. At McCune Wright Arevalo, LLP, we are committed to protecting the financial wellbeing of all our Inland Empire neighbors and those across the country. We have a proven history of success to the tune of millions in settlements and trial verdicts against unscrupulous banks and credit unions charging unfair overdraft or NSF fees. If you believe you may be the victim of unfair or deceptive bank or credit union practices, let us fight for you. Contact us today or call (855) 976-3154.