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Non-sufficient funds fees (NSF fees), are charged when you attempt to spend more money than you have in your account.
This may occur if a cheque you wrote is processed or a pre-authorized payment comes out of your account, and you don’t have the funds to cover the transaction. In response to the lack of funds, the bank may penalize you with an NSF fee, which typically costs close to $50.
Beyond the added cost, non-sufficient funds fees can impact your credit. Understanding how NSF charges work and how to prevent them can help you safeguard your account balance and financial future.
What is a NSF charge?
A NSF fee is charged when a transaction amount exceeds your account balance and your bank rejects the transaction for non-sufficient funds. You can typically find the NSF or insufficient funds notices on transaction receipts and on bank statements.
However, if you opt for overdraft protection, your bank may approve the transaction and charge an overdraft fee instead, depending on your bank agreement.
How much are NSF fees?
NSF fees vary by financial institution, but an insufficient funds charge from Canada’s Big Six banks usually ranges between $45 to $50.
You may also need to pay a returned cheque fee, which the recipient’s financial institution sometimes charges.
Can NSF fees be waived?
Yes, your bank or credit union may waive or refund an NSF charge from your account if it was an honest mistake and you request it be removed. There’s no guarantee the bank charge will be reversed, but it doesn’t hurt to ask.
Banks are more likely to refund first occurrence NSF fees for customers who otherwise keep their accounts in good standing. Repeated overdrafts are less likely to be waived.
Consequences of NSF charges
The impact of an NSF charge can vary. Sometimes, the financial institution may fund the attempted transaction with money from another linked bank account, such as your savings.
In other cases, a cheque may be classified as bounced or dishonoured, which can cause legal trouble.
If you write a cheque or make a payment that you know you don’t have the funds to cover, you could face criminal charges for cheque fraud.
Do NSF fees affect your credit?
NSF charges can negatively impact your credit score through indirect means. While bounced cheques are not reported to credit bureaus, insufficient funds can cause late or missed payments, which can be reported. In addition, unpaid debt may be sent to collections and will appear on your credit report.
If you consistently don’t have enough money in your account to pay your obligations, you may appear as a credit risk to lenders. This pattern could lower your chances of being approved for a credit card or qualifying for bank loans.
NSF fees vs. overdraft fees
NSF fees and overdraft fees are penalties for overdrawing your account. But which fee you’re charged depends on whether you have overdraft protection.
| NSF FEE | OVERDRAFT FEE | |
| Causes | An account holder has no overdraft protection and makes a payment that cannot be covered with their account funds. | An account holder has overdraft protection and makes a payment that cannot be covered with their account funds, but is within the overdraft limit. |
| Cost | Usually between $45 to $50 per attempt. Plus, a potential returned cheque fee. | Usually a $5 monthly or pay-per-use fee. Plus, a daily interest around 21% per annum on the overdrawn amount. |
What is overdraft protection?
Overdraft protection is a line of credit — typically up to $5,000 — that extends your account balance up to the amount you apply and qualify for.
If you happen to overdraft, your account will have a negative balance, and you will be charged daily interest at about 21% per annum until you repay the overdrawn amount.
Nerdy Tip: If you only dip into overdraft occasionally, then overdraft protection may not be worth the added cost. But this protection may be valuable if you regularly overdraw your account.
5 ways to avoid NSF charges
Avoid NSF fees with the following tips:
- Sign up for overdraft protection. Avoid NSF charges by signing up for overdraft protection through your financial institution.
- Monitor your bank account balances. Know how much money you have in your bank accounts by checking your balance regularly. This information can help you avoid overspending.
- Track your spending. Stay accountable by creating a budget to monitor your spending habits.
- Set up alerts for low balances. Many banks allow customers to set up automated alerts once certain account balances or spending thresholds are met. These alerts can help you make informed spending decisions.
- Use a prepaid card. It’s impossible to overdraw a prepaid card because you’re limited to the funds loaded onto the card — which means you can’t incur any NSF fees.
Frequently asked questions about NSF fees
NSF fees may appear on transaction receipts or as a transaction description on your online or paper bank statement. It may take one to two business days for the fee to appear after the account has been overdrawn.
You may be able to get an NSF fee refunded by asking your bank to reverse the charge. Whether or not your bank complies largely depends on the financial institution and your account history.
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