Nonsufficient Funds (NSF) Fees are charged to account holders when their account is overdrawn, and the bank doesn’t allow the transaction to clear.
For example, let’s assume John has a credit balance due of $650. He writes a check from his checking account to his credit card company for $650. When the credit card company processes the check, John only has $500 in his checking account. The check bounces, and the bank does not allow the payment to go through. The bank charges him an NSF fee for the transaction.
The NSF fees are not to be confused with bank overdraft fees. The two are similar, but there are some differences. The bank charges an overdraft fee when it allows the transaction to go through despite the account holder’s insufficient funds. Let’s examine the same example above.
John has a credit balance due of $650. He writes a check from his checking account to his credit card company for $650. When the credit card company processed the check, John only had $500 in his checking account. The bank cleared the check, so John’s credit card bill was paid. John’s bank account balance now shows a negative balance of ($150). The bank charges John an overdraft fee. John must pay the overdraft fee and the overdrawn amount to return his account to zero.