Balancing mistakes can happen whether you’re living paycheck-to-paycheck or simply managing monthly bills. You get hit with Non-Sufficient Funds (NSF) fees when something hits your account and there isn’t enough money available. The item also doesn’t get paid. This could be a bill you paid or a check you wrote. Many times, whoever you’re trying to pay will also tack on a fee, resulting in more lost money. While this accident can create a trickle effect of extra charges and budgeting issues, it doesn’t have to be that way. Overdraft protection can eliminate any balancing fears and ensure your payments are received on time.

Understanding Non-Sufficient Funds

Your financial institution charges a non-sufficient funds fee, or NSF fee, when your checking account doesn’t have enough money to cover a purchase or withdrawal. Your bank or credit union will decline to cover the transaction and block it from going through.

Which Payments are Susceptible to NSF Fees?

NSF fees typically apply to electronic/online payments or checks. Most institutions will decline debit card transactions altogether without charging a fee. However, not all financial institutions do this. Make sure you understand how NSF fees are assessed on your account. Money FCU only charges NSF fees for declined electronic payments or checks. A debit card transaction will simply get declined at the time of purchase.

How Much are NSF Fees?

They generally range between $20 and $40 each, but the price tag for NSF fees will vary by institution. However, that is not the only charge you’re likely to incur. The company you tried to pay might also charge you a fee for the payment being returned to them. Plus, you could receive a late payment fee if you’re too close to the due date.

What is an Example of an NSF Fee?

Let’s assume you scheduled a payment for your $150 electric bill. However, your checking account only had $125 when the payment tried to come out. The payment will be returned to the electric company because the payment amount exceeds the money available in your account. This results in you being charged an NSF fee from your financial institution.

Your fees may look like this:

• $25 NSF Fee (financial institution fee)
• $25 Returned Payment Fee (company fee)
• Late Fee of 3% of the Amount Due (company fee)

Non-sufficient funds fees (sometimes called insufficient funds fees) can become costly. That’s because two parties incur costs because of that returned payment. The financial institution must process and return the payment, and the merchant you paid receives a declined payment, which they must recollect from you.

However, you can avoid all these extra costs and fees with some version of overdraft protection.

We’re going to review the three most common account protection services.

1. Overdraft Protection from Savings

Overdraft protection is a service offered by most financial institutions at no cost. With this service, you essentially link another account (usually your savings account) to your checking account as a backup. The process usually works like this:

Your financial institution will look to see if you have money available in your savings account (your linked account) if a transaction comes through and you don’t have sufficient funds in your checking account.

• If money is available in your savings, they will draw from that account and cover the remaining payment amount. Usually, there is no fee for this service. But, always double-check with your bank or credit union. Money FCU doesn’t charge for this service.
• If you don’t have funds in your backup account, the payment will be denied for non-sufficient funds, and you’ll incur regular NSF-related charges.

What is the Cost of Overdraft Protection from Savings?

Most financial institutions don’t charge for overdraft protection when linked to a backup account, such as your savings. However, if there is a fee, it’s usually small compared to the NSF alternative. Most people would rather pay a smaller fee (if applicable) than have their payment denied and incur traditional NSF-related fees. Money FCU does NOT charge you for taking funds from the backup/linked account.

Do You Have to Apply for Overdraft Protection from Savings?

At Money FCU, your savings account is automatically linked to your checking account. There is no extra application. You’ll want to ask your financial institution if you need to enroll and list your backup account if your checking account is not with us.

What is an Example of an Overdraft Protection from Savings?

Let’s use the same example of you paying a $150 electric bill but you only had $125 in your checking account when it tried to come out. But, you have $100 sitting in your savings account. With Overdraft Protection from Savings, the extra $25 needed to pay the bill is automatically transferred from your savings account to cover the transaction. Then, your payment goes through successfully! You can avoid any NSF fees, returned check fees, or late fees with this protection.

This service also covers debit card transactions, so you won’t get declined when trying to purchase something.

2. Overdraft Line of Credit

An Overdraft Line of Credit is an “instant loan” that kicks in when there isn’t enough money to cover a payment. It’s similar to Overdraft Protection from Savings, but you don’t need money in your backup account for this to work.

Is an Overdraft Line of Credit a Loan?

Yes. It’s a personal line of credit with a pre-determined limit you can borrow against. It’s similar to a credit card. So, your monthly payment will change based on the rate and balance of the loan if you use the line of the credit. You only pay for it when you actually use it. Otherwise, it’s just there as a safety net!

Do You Have to Apply for an Overdraft Line of Credit?

Yes. You need to apply for it because it’s technically a loan. You can apply for one and connect it to your checking account at any time. At Money FCU, we can usually have you approved and the line available within 1 business day.

How Much is Covered by an Overdraft Line of Credit?

You can have an Overdraft Line of Credit for as little as $250 up to $10,000 at Money FCU. There is no limit on how much you can use at one time, as long as it’s not over your credit limit. Check with your specific bank or credit union since limits will vary based on your financial institution.

What is an Example of an Overdraft Line of Credit Transaction?

Using the electric bill example, let’s say you scheduled a payment to them for $150, but there was only $125 in your account when it tried to come out. The Overdraft Line of Credit will automatically kick in and cover the remaining $25. You will then have a small “loan” of $25, plus a little interest, that you need to pay back. You can pay it back right away once you have the money, or simply wait for the minimum payment due date. You can also pay it back in monthly installments, like a credit card.

An Overdraft Line of Credit Bonus!

The Line of Credit will actually cover debit card transactions! That means you won’t get declined at the time of purchase. Many people set up an Overdraft Line of Credit for emergencies instead of using credit cards. The interest rate is typically lower than most credit cards, and it’s tied directly to your debit card, so you don’t have to carry multiple forms of payment.

If you already have a checking account with Money FCU and would like to add an Overdraft Line of Credit, simply complete a loan application. You can apply for $250-$10,000.

3. Courtesy Pay

Courtesy Pay is a special type of overdraft protection offered by financial institutions. Its function remains the same even though the specific name of the service may vary by bank or credit union. Please note that Money FCU does NOT offer Courtesy Pay. This is simply educational.

With Courtesy Pay, if you don’t have enough funds in your checking account, your bank or credit union will cover the overdrawn amount and complete the transaction for you. However, you must repay the amount your institution covered, plus a Courtesy Pay fee.

Is Courtesy Pay a Loan?

Since your financial institution covers the overdrawn amount on your behalf, it can be viewed as a short-term loan, but there isn’t usually an interest rate tied to Courtesy Pay. Generally, you have between 60-90 days to repay the amount your institution covered, plus the Courtesy Pay fee. This is different from an Overdraft Line of Credit because it’s usually a flat fee with a set due date.

Do You Have to Apply for Courtesy Pay?

Financial institutions usually require you to enroll in this protection and your account must meet specific requirements. For example, being in good standing, being a member for a set time, etc. Check with your financial institution for details.

How Much is Covered by Courtesy Pay?

The amount that you can go into the negative will vary by financial institution. For example, many institutions allow members in good standing to overdraw their checking account up to $500. Consequently, there are strategies where you can use this service as an alternative to costly payday loans.

What is an Example of a Courtesy Pay Transaction?

Once again, let’s use the example of you paying a $150 electric bill but you only had $125 in your checking account when it tried to come out. Courtesy Pay allows the credit union to pay the difference of $25 for you, and you will incur a Courtesy Pay charge instead of an NSF fee.

Which Protection is the Best Option?

Having some sort of protection is a no-brainer. It allows your payments to clear without any extra hassle, and you’ll avoid NSF fees, returned item fees from the merchant, and possible late fees or dings to your credit. The type of overdraft protection you choose will vary based on what your bank or credit union offers and what you feel the most comfortable with.

For example, regular Overdraft Protection from Savings won’t work for you if you don’t usually have extra money sitting in your savings account. Maybe a small $500 Overdraft Line of Credit would work better. It’s a manageable amount that can still cover you in case of any budgeting mistakes. Also, look into what fees are associated with Courtesy Pay before hopping into that program. Sometimes, the fees are more costly than what was needed to cover the payment itself.

In the end, all overdraft protection services allow you to avoid costly returned merchant fees and protects your credit score from potential late payments.

We’re Here to Help!

Financial accidents happen. Knowing your account is protected from overdrafts and NSF fees provides peace of mind. We encourage you to speak with a team member to determine which solution is right for you. We’re here to help you learn how to manage your finances efficiently so you can make the most of your money.

If you want to learn more about these services or have questions, call, chat, text, or stop in! Our team is available M-F, 9am-4pm ET. (315) 671-4000.

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.