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Published November 5, 2021
Updated November 5, 2021

What Is A Non-Sufficient Funds (NSF) Fee?

An NSF fee can cost almost $50, but the lost money isn’t the only serious consequence — overdrawing your account can also hurt your credit score.

A non-sufficient funds (NSF) fee happens 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 your account becomes overdrawn. In response to the error, the bank may penalize you with a relatively steep fee, which can easily approach $50.

Luckily, there are ways to prevent non-sufficient funds charges from impacting your account balance.

What happens when you get an NSF charge?

If a transaction, such as a cheque or pre-authorized payment, drops your account balance below zero, your bank can choose to reject the transaction for non-sufficient funds or approve the transaction and charge an overdraft fee.

If you do not have overdraft protection, you’ll probably get hit with an NSF charge. You will likely see the NSF or insufficient funds notice on your receipt or the transaction description line in your bank statement.

The cost of the NSF fee varies depending on the financial institution, but an NSF charge from Canada’s Big Five banks usually ranges from $45 to $48.

You may also receive a charge from the recipient of your payment in the form of a return cheque fee. This charge will come in addition to the original NSF charge from your bank.

Consequences of NSF charges

The impact of an NSF charge can vary. Sometimes, the financial institution may attempt to fund the attempted transaction with money from another linked account, such as your savings. In other cases, a cheque may be classified as bounced or dishonoured, which can cause legal trouble.

Not only can NSF charges eat into your savings, but they can negatively impact your credit score. While a bounced cheque is not reported to credit bureaus, insufficient funds can cause a late or missed payment, which can be reported. In addition, that debt will be sent to collections and will be on your credit report. If you chronically don’t have enough money in your account to pay your obligations, you may appear as a credit risk to lenders.

» MORE: How to check your credit score

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.

If the NSF charge is an honest mistake, and other than this one blemish, your account has remained in good standing over a long time, you may be able to get your bank to waive the NSF fee entirely. All you have to do is ask.

» Ready for a change: Here’s how to switch to a new bank or credit union

How to avoid NSF charges

Some of the best ways to avoid NSF charges include

  • Monitoring your bank account balances
  • Tracking your spending with a budget
  • Setting up alerts for low balances
  • Using a prepaid card
  • Having multiple accounts with the financial institutions so other funds are available to cover accidents.

Signing up for overdraft protection is probably the simplest and cheapest way to avoid NSF charges.

What is overdraft protection?

Overdraft protection is a small credit that extends your account balance past what’s actually there by whatever amount you apply and qualify for. It works by protecting your account from the consequences of being overdrawn.

If you happen to overdraft, your account will be minus whatever amount you happen to dip into and you will be charged daily interest at about 21% per annum until the overdraft amount is paid back.

Depending on the type of overdraft protection plan you choose from your bank, in addition to the interest rate, you will be charged a per use or per month rate for overdraft protection. The fee is most commonly $5 either per use or per month.

If you only dip into overdraft occasionally, then overdraft protection may not be right for you. However, if you find yourself going into overdraft on a regular basis, it may be worth it to get overdraft protection.

» MORE: How to save money

About the Author

Aaron Broverman
Aaron Broverman

Aaron Broverman has been a personal finance journalist for over a decade. His work has appeared on such outlets as Yahoo Finance Canada, Bankrate and Creditcards.com, Money Under 30, Wealth Rocket, CBC.ca and Greedyrates.ca. This former Toronto transplant via Vancouver now lives in Waterloo with his wife and son.

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