Photo by Damir Spanic on Unsplash
You’re not alone if
you’ve fallen out of the habit of balancing your checkbook because you trust
your online banking statement to indicate how much money is in your account.
Why do the math when the number is so accessible? This amount is not always
accurate, though, because it might not reflect recent purchases or pending
transactions.
As such, you might
have tried to write a rent cheque with less money in your account than you
believed. Your landlord attempted to deposit the cheque, but it bounced. Now
you’re late on rent, and there’s a charge on your bank account that reads “NSF
Fee - Item Returned.” You didn’t mail any packages that came back to you, so
what does this fee mean, and why were you charged?
What are Returned Item Fees?
Your account's charge
is called a returned item fee, also
known as a nonsufficient funds fee (abbreviated
as NSF). It means you didn’t have enough funds in your chequing account to
cover your attempted transaction, and you don’t have overdraft protection.
WalletHub notes that NSF
fees are fixed and vary between states, but they are usually between $27 and $35. Because they are set, you can incur a $30 fee for
overdrawing your account with $700 in it if you try to write a check or make an
ACH payment for $800. Likewise, your bank can charge you the same $30 if you
try to buy groceries at the grocery store using a debit card for $50 with only
$2 in your checking account.
Why do these fees
exist? You’re not wrong to notice that they perpetuate the cycle of debt and poverty. The answer is in the name
“returned item fee” — your bank is making you pay for the trouble of sending
your money back to you. Your bounced cheque will be re-deposited into your
account, but your bank won’t do it for free.
Can You Waive a Returned Item
Fee?
It’s possible, but
not common. It never hurts to call your bank’s customer service center and ask.
The worst thing they can do is say no, and they may feel more inclined to help
you out if you explain your situation or have never overdrawn your account before.
The bank may not erase the charge entirely, but it’s always worth a shot.
How are NSF Returned Item Fees
Different Than Overdraft Fees?
You might be confused
about the difference between an NSF returned item fee and an overdraft fee.
Overdraft protection is a service you can opt into that allows you to overdraw
your account when you have nonsufficient funds. If you had overdraft protection
in our previous example, your bank would loan you the difference or pull from
your savings account, your rent cheque would still go through, and your landlord
would be none the wiser. Your bank would then charge you a comparable overdraft
fee for using this service.
How to Avoid Returned Item Fees
How can you avoid
having an “NSF Fee - Item Returned” charge in the future? Check out the
following tips:
Access Your Money On Time
Maybe one reason you
had less money in your account than you thought you did is because your
paycheck was delayed. You depend on punctual deposits to pay your bills on time
(or your bills are due before payday), but you’re afraid to ask your employer
for an advance too often. In this case, you can use an app like Earnin to access your pay when you
want it and make payments. You’ll avoid a returned item fee, and you pay the
app back without mandatory fees when your paycheck arrives.
Use a Backup Source
Link your chequing
account to a backup source of money, such as a savings account. You will likely
have to pay an overdraft fee to pull from it, but this will hopefully be
smaller than an overdraft fee for borrowing money or an NSF fee.
Take Advantage of Overdraft
Protection
Overdraft protection
can spare you from NSF returned item fees. However, be aware that there are caveats to this service. Your bank could report you to
a debit bureau like ChexSystems if you rely on it too frequently, which could
negatively impact your ability to open a new checking account in the future.
Turn on Low-Balance Alerts
Link your account to
an app with low-balance alerts or use your bank’s native
feature. If your funds drop too low, an alert will notify you that you either
need to replenish your account or avoid spending until further notice. Mint is an example of an app that
enables low-balance alerts.
Budget Carefully
Besides making a
significant amount of money, your next-best option to avoid returned item fees
is to budget carefully. Make sure you balance your accounts and checkbook, so
you know how much money you have at any given time. Your online banking
statement and third-party apps can help, but it’s always good to be sure before
you trust the number they display too quickly. Apps like GoodBudget and Cleo can help you manage your money
wisely.
It’s not fun to see a
returned item fee on your statement, but you can avoid them by keeping an eye
on your financial status and using resources available to you.
This article originally appeared on Earnin.
Please note, the
material collected in this blog is for informational purposes only and is not
intended to be relied upon as or construed as advice regarding any specific
circumstances. Nor is it an endorsement of any organization or Services.
