What are nonsufficient funds (NSF) fees and how can I avoid them?

April 20, 2022

It pays to monitor your bank account. If you don’t check it regularly, you may be hit with fees when your balance falls too low. Read on to find out what NSF fees are and how you can avoid them.

When you make your mortgage payment, we’re counting on you to have enough money in your bank account to cover the payment. But if your account doesn’t have enough money, your bank will reject your payment, and we’ll charge you an NSF (nonsufficient funds) fee—also known as a returned payment fee.

NSF fees are a cost you want to avoid. First, they’re an additional charge we add to your loan account. In addition, we include all unpaid fees in your current account balance when we send our monthly reports to the consumer credit bureaus. And if your balance includes outstanding fees, it could hurt your credit score.

Read on to find out what you can do to steer clear of NSF fees.

What is an NSF fee?

When your bank account balance doesn’t cover the cost of a transaction, your bank will reject your payment—and you’ll have to pay NSF fees.

For example, let’s say you send us a $1,000 check for your mortgage payment, but your checking account only has $500 in it. When we try to cash your check, your bank will reject it (because your account balance can’t cover it), and we still won’t have your payment. Then we’ll charge you an NSF fee for the time and money it costs us to process the invalid payment. Your bank may also charge you fees.

In other words, your check “bounces,” and your bill remains unpaid.

The rejected transaction could also cause your payment to be late—and late fees can also hurt your credit score. Learn more about how to avoid late payments and fees.

Why did you charge me an NSF fee?

NSF fees are most common when you make your payment by check or autodraft. A low account balance is usually the reason that the bank returns your payment. This can be caused by:

• Postal delays. Checks can take days—or even weeks—to be delivered and processed, especially considering today’s postal-service challenges. With that kind of delay, it can be a challenge to keep your account balance high enough to cover your payment.
• Unforeseen factors. Maybe your paycheck took longer than usual to clear, or a big purchase you made last week just now hit your account.
• Not monitoring your account. If you don’t carefully track your account balance, you may not have enough money in your account to cover your expenses.

Another common cause for NSF fees is entering an incorrect bank account or bank routing number when you set up an autodraft payment. Always double-check to make sure you correctly enter your bank account and bank routing numbers when paying by autodraft.

Your payment could also be returned if you write a check from a closed account—or if you don’t properly endorse your check.

Multiple NSF fees may be a sign that you’re in a tough financial situation. If you’re having trouble making your mortgage payments, call us at 800-365-7107. We’re committed to working with you, and we’ll do everything we can to help you find a payment solution that meets your needs. We also recommend that you find a free financial counselor.

Why was I charged multiple fees?

When your bank account doesn’t have enough money to make your payment, both we and your bank may charge you a fee.

The amount you may have to pay your bank depends on where you live and what bank you use. Banks choose their NSF fees, but they’re limited by caps set by state laws. A bank NSF fee will typically cost between $27 and $35. The most we charge for an NSF fee is $50.

There are ways to protect yourself from being hit by multiple fees on one transaction. For example, most banks offer overdraft protection, or they may enable you to link multiple accounts to help cover a shortage. If you have overdraft protection, your bank may charge you an overdraft fee—but that can save you from getting hit by fees from us. Find out more about bank-imposed NSF and overdraft fees.

How do I avoid NSF fees?

NSF fees are certainly irritating. But you can take a few simple steps to avoid them:

• Monitor your account. The best way to avoid NSF fees is to regularly check in on your account. Unexpected bills and purchases can cause your account balance to decline faster than you expect. Make sure your account has enough money to handle outstanding purchases and checks that haven’t cleared. Helpful tip: Keep a cash cushion in your account to serve as a safety net.
• Make sure your bank account and routing numbers are correct. When you set up an autodraft payment, enter your bank account and routing numbers accurately. And if you use our automated phone system to make your payment, listen carefully to the playback to ensure the numbers are accurate.
• Create a budget and follow it. Create a spending plan based on your income and expenses. A budget can help keep expenses in check so you have enough money in your account to cover your bills. If you’re struggling to make your mortgage payments on time, review your spending habits to see where you can cut costs. Your mortgage payment should be your top priority.
• Talk to your bank. Banks offer a variety of ways to help you avoid NSF fees. You can link multiple accounts to help cover an account shortage, or you can sign up for overdraft protection. But if your bank charges too many fees, you may want to shop for a different bank.
• Set up account alerts. Email or text alerts can make it easier to monitor your transactions and your account balance.
• Plan around payday. Schedule your payment to be withdrawn from your account one or two days after your regular payday. This is one of the best ways to ensure your account will have the funds you need to cover your transactions.

The bottom line

Paying NSF fees is a bit like throwing your hard-earned money in the trash. And if you’re not careful, they can add up and you can get behind in your payments. So keep an eye on upcoming bills and payments and pay careful attention to your spending habits and your account balance.

As Benjamin Franklin once said, “Beware of little expenses. A small leak will sink a great ship.”