Dreaded NSF Fees & How to Get Rid of Them

Opting out of Overdraft Protection will simply subject you to the equally detrimental Insufficient Funds Fee

You try hard to save. You try really hard to stay disciplined because, contrary to what everyone believes, you actually want to think about your future.

That’s a lot of our users — young adults who are trying extremely hard to be responsible. But it’s hard: living paycheck to paycheck, paying student loans, even personal loans and then the occasional slip up happens that hurts your fragile finances — for example your direct deposit gets delayed.

Then comes the first overdraft fee.  You know that you will be charged an exorbitant amount of fees if you keep on opting into overdraft protection. So you pay the overdraft fee in this instance, then turn off overdraft protection because you don’t want to pay that pesky overdraft charge next time your account is overdrawn.  You think you don’t want to spend the money you don’t have, so you prefer if the bank declined the transactions.

You do all the right things, given your situation.

Then, you go about your life. You’ve turned off overdraft protection, so you don’t really need to worry about those fees. WRONG.

Between an Overdraft and a Non-Sufficient Funds Fee (NSF)

Your direct deposit gets delayed because of a weekend or the ACH system. You have barely enough money in your account for anything else.

Then, Netflix charges you the monthly subscription. Your bank declines it, and you get charged $35 in NSF (Insufficient Funds or Non-Sufficient Funds) fees.

Your phone bill is on autopay charges your designated account.  The bank declines it, you get charged $35 in NSF fees.

You may even have a round up savings app which tries to round up your recent transaction and charges your account.  The bank declines it, and you get hit with another $35 NSF fee.

The well-meaning transactions, which were helping you save little by little suddenly don’t look helpful any more.

By this time, your balance is heavily in the red. Your direct deposit comes through, but it isn’t enough to cover through your regular expenses PLUS all those NSF fees you have amassed. Your balance is still in the red.

Then the savings apps you were using before try their transactions again (it hasn’t been paid for its transaction — remember — the transaction was declined by the bank). Bank declines it, you get charged another set of $35 NSF fees.

Most merchants retry every 4 days for at least half a month. So the same declined charge could cost you 4 NSF fees until the merchant gives up. Overdraft would have cost you one (*theoretically *— overdraft has its own share of repercussions).  Some merchants continue to try for 10 days straight. Often, this happens before the customer realizes such repeat transactions are happening. By that time, the customer often builds up more than $1000 in fees alone with the bank.

That’s only the bank. The merchant will also then come after you for non-payment and tack on additional fees. Most businesses will not only charge you late fees on your account, but will also charge an additional fee for bad checks or bounced checks.

To those who have not had to deal with such situation, it may look unbelievable or even exaggerated. However, we see this day after day among many of our customers. Of our customers who have NSF fees, more than 70% are victims of this vicious cycle.

Charging to pay (overdraft protection) vs. Charging to not pay (NSF)

If the bank pays a debit card transaction that would otherwise be declined, users would incur overdraft fees, but the merchant would not keep on retrying to get that money. In such cases, the only party the user has to deal with is the bank. If you have already incurred overdraft or NSF fees, companies like Harvest Platform can help you get back on track by negotiating refunds on your behalf.

If the bank doesn’t pay a debit card transaction and declines it, then users should *immediately* call the merchant and stop the chain of retries that leads to repetitive NSF fees being charged for the transaction. If users don’t do this, it will most certainly lead to fee increases of hundreds per day. To put things in context: a one time charge of $35 in NSF fees by a single merchant, if retried for 6 days consecutively, costs $210 total even if paid on the 7th day. If explained in interest rates, that number is a sky high 30,000% APR!

Now imagine if you were to catch this late and several merchants are retrying all their transactions.

Overdraft protection is a lesser evil on compared to Non-Sufficient Funds Fees

In fact, overdraft protection was initially introduced as a way to reduce non-sufficient funds fees. Exactly because of issues mentioned above, banks and credit unions began setting up overdraft protection, and sometimes a line of credit from the user’s savings accounts or with variable APR from the bank itself. This way, the user would get charged an overdraft fee, but would avoid the repeat declines, late fees and interest charges with the merchant itself. One could even assume, the intent was good at first.

But as overdraft fees started representing a significant source of revenue for banks, the benevolent nature of such fees started disappearing.  Initially applied to just checks and electronic payments, overdraft protection started becoming applied to ATM withdrawals and debit card transactions. For a long time, banks could also enroll account holders in overdraft protection without their permission, until a policy change  happened after the financial crisis. Overdraft fees come with their fair share of trouble for users, but there is a certain amount of utility  that comes with overdraft protection that is not provided by NSF fees.

So, what can someone do to avoid NSF fees on their checking account besides overdraft protection?

If you’ve been charged NSF fees already:

  1. Call your merchant ASAP and find a way to stop them from retrying - either by paying from another deposit account, transferring funds from a savings account, or setting up a payment plan.
  2. Use companies like Harvest Platform to negotiate refunds on many types of bank charges.
  3. If you incur such charges frequently, move to consumer friendly mobile banking app like Chime or Cash App that do not charge overdraft or NSF fees when you don't have enough money to cover a transaction.
  4. If you have a credit card and are unsure of your checking account balance, you may be able to avoid a non-sufficient funds fee or overdraft by using the credit card instead, which is likely to be much less expensive so long as you are using the credit card responsibly.
  5. If your bank fees are extremely high and you are not in a position to pay off the bank, speak with the bank’s collections department to set up a payment plan. Otherwise, you may be unable to open up another bank account in the future. Lack of payment gets reported to Chexsystems, a reporting agency that financial institutions use to share information on consumers that have defaulted on their bank fees.

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About the Author

Harvest helps increase the net worth of the 99% through artificial intelligence and financial automation. To date, Harvest has refunded over $2M in bank fees and interest charges to its members with the ultimate goal of increasing the net worth of everyday Americans by $1 trillion by 2030. Our platform starts with providing immediate relief through bank fee and interest charge refunds, orients a member's financial health with our proprietary PRO Index, and keeps track of net worth over time aided by our suite of financial tools. Check out our 8-step guide on "How to Build Wealth from Nothing" to get started on increasing your net worth.

Disclaimer: Harvest is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.