A returned item fee is a term that refers to a penalty charged by a bank or any financial institution for a returned payment or bounced check due to insufficient funds (NSF) that failed to cover the transaction. A returned item fee typically ranges between $20 to $40 per instance, which may vary from bank to bank.
Returned Item Fee vs Overdraft Fee
A returned item fee is charged when the financial transaction is declined by the bank, such as the check was returned unpaid, typically due to insufficient funds. Meanwhile, an overdraft fee is charged when the transaction against an insufficient balance is approved by the bank, resulting in a negative account balance.
How Does a Returned Item Fee Work?
A returned item fee is charged when your financial transaction, such as check payment or automatic debit payment, is declined or returned. This typically happens when you don’t have enough money in your account to cover the transaction at the time it is presented.
For example, you wrote a $500 check to pay for your rent. However, you only have a balance of $450 in a checking account that does not have overdraft protection. When your landlord presented the check, your bank declined the transaction due to insufficient funds, and the check bounced. Your bank will then charge you a returned item fee for this returned item.
While most returned items are due to insufficient funds, financial transactions may also be declined for a variety of other reasons, including account closures and account freezes. Returned payment fees are most common with checks, but they may also occur with payments made online or scheduled automatically. It’s essential to make sure that you have sufficient funds in your account to cover any payment you make.
How Much Does a Returned Item Fee Cost?
The amount of returned item fees vary depending on your bank or financial institution. However, the fees typically range between $20 to $40 per incident. You can be charged with multiple returned item fees in a day if you have multiple declined transactions due to insufficient funds.
It’s important to note that since returned item fees are generally a fixed amount, you may be hit with a very high fee compared to the amount of deficit in your account. These fees can easily add up if you are not careful. It’s also possible that you may have to pay other charges because of your failed financial transactions.
Depending on what type of financial transaction was declined, you may also be charged with late payment fees and interest. For example, if the bounced check or declined automatic debit payment was supposed to be a payment for your credit card, your credit card account will become overdue. This means that your card issuer will charge you with a late penalty and interest on top of the returned item fee charged by your bank.
Can a Returned Item Fee Be Waived?
Some banks may allow special considerations and waive returned item fees, especially for customers who are first-time offenders with otherwise good credit standing. Other banks may consider waiving the fees depending on the reason why a financial transaction was declined. Generally, asking for a returned item fee to be waived may not be an easy process. The decision on whether the fees will be waived or not is still dependent on your banking relationship with your bank and your specific situation.
How to Avoid Returned Item Fees
Aside from getting hit with high fees, declined payments and bounced checks can also hurt your credit. Knowing how to avoid returned items due to insufficient funds can help you save on unnecessary fees and maintain good credit standing.
Here are a few ways to avoid getting charged with returned item fees:
- Balance your checkbook: It’s important to monitor your check payments and automatic debit transactions to ensure that you have an adequate balance in your account. When you have enough money in your account to cover your check issuances and automatic payments, you can avoid bouncing checks and getting charged with returned item fees easily.
- Sign up for overdraft protection: Another way to avoid getting charged for returned items is to sign up for your bank’s overdraft protection program when you open an account. With overdraft protection, the bank will cover your financial transactions against insufficient funds temporarily. However, you may need to pay an enrollment fee to join this program, and you may also be charged with an overdraft fee per instance.
A returned item fee is charged when your financial transaction is declined by the bank due to many reasons, typically an insufficient balance. To avoid this fee, it’s important to ensure you have enough funds in your account to cover your financial transactions. You may also consider signing up for overdraft protection through your bank so that your transactions will go through even if your account balance is insufficient.