Maybe you had to unexpectedly foot the bill at dinner, or you had to fill your gas tank before your paycheck hit this week. If you aren’t keeping a close eye on your checking account, you may find yourself overdrawing and slipping into a negative balance—and when you try to spend more money than you have in your account, you’ll get hit with “overdraft” or “non-sufficient funds” fees. Accidentally overdrawing your account by even a few cents can turn into an outrageous $50 charge: Here’s what to know about these two types of fees, and what you can do to avoid them.
What are overdraft fees vs. non-sufficient funds fees
The main difference between these two types of fees is whether or not your transaction is approved when you overdraw your account. Your bank charges an overdraft fee when it covers the overdraft, so your transaction still goes through. So, if you buy something for $50 and only have $30 in your account, your bank will will approve the transaction. However, they charge you an overdraft fee on top of the $20 you now owe.
A bank charges a non-sufficient funds fee when it denies a transaction on your checking account. This means bounced checks or automatic payments not going through—which naturally leads to a host of other consequences in your finances.
Most banks have a limit (anywhere from $5 to $50) on how much money you can overdraw from your checking account. According to the Federal Deposit Insurance Corporation, the average overdraft fee is around $35. According to the Consumer Financial Protection Bureau, the average non-sufficient funds fee is $34.
The main takeaway: With an overdraft fee, the bank still covers the charge. With a non-sufficient funds fee, the bank doesn’t.
How to avoid bank fees
With a little due diligence, you can avoid overdraft and non-sufficient funds fees. Most important, of course, is staying on top of your finances and keeping an eye on your account balance.
A smart move is to enroll in overdraft protection, which ensures that your bank automatically transfers money from a linked account when your checking account would otherwise be overdrawn. It costs money to sign up for overdraft protection, but that cost is likely worth it if you think you’re at risk of overdrawing your account.
An alternative to your bank’s overdraft protection is to link your savings account to your checking account. This way, any overdrafts get pulled from your own funds. You can also sign up for low-balance alerts from your bank’s mobile app so you avoid overdrafts altogether.