Non-sufficient fund (NSF) fees are an annoyance that many Canadians unexpectedly face.
They can cut into your income needlessly as a result of not paying careful attention to your finances.
Sometimes, they occur completely by accident, but you’re still expected to pay them.
Let’s go over how NSF fees work and how you can avoid them.
What is an NSF Fee?
An NSF fee is a fee charged when a cheque or pre-authorized debit (PAD) from your account cannot be cleared.
When the account you’re trying to pay from doesn’t have enough funds for the transaction, the cheque or PAD will be referred to as a bounced or dishonored payment.
If the account doesn’t have the funds for a transaction, the transaction will be declined and the cheque or payment will be rendered void.
The bank will also charge the account holder an NSF fee.
NSF fees are normally around $45 in Canada.
If the account has overdraft protection that can cover the cheque or PAD amount, then the cheque or PAD will still go through.
In this case, the account holder may have to pay overdraft fees instead of NSF fees.
Why Banks Charge an NSF Fee
Bouncing a cheque or pre-authorized debit payment isn’t regarded as good for anyone and when you have ‘non sufficient funds’, the bank will have to cancel the transaction.
Compared to other banking fees, NSF fees are quite high.
This is possibly because the bank wants to dissuade their customers from writing bad cheques but also to cover the cost of trying to process your payment and having to send it back as NSF.
However, many banks will allow overdrafts to avoid charging you these expensive fees.
How To Avoid NSF Fees
The only sure way to avoid NSF fees is to ensure you have sufficient funds for cheques you write or withdrawals that will be taken from your account.
Bounced payments often result from the account holder’s uncertainty surrounding their chequing balance.
There are a few things you can do the avoid these fees.
1. Keep a Reasonable Buffer
Technically, your minimum balance is either $0.00 or whatever your overdraft limit is.
However, it’s never ideal to rely on those as your true minimum balances.
If you can, ensure you have extra funds in your account to cover the average payment that gets withdrawn from your account.
This is especially important for automatic payments.
You can also make sure your bank account has reasonable fee waivers and overdraft terms.
This helps expand your buffer, but in general higher account balances are the only full buffer from high NSF fees.
2. Reminders & Alerts
Banks and budget apps often enable you to set reminders for your balances.
If your account hits a specified balance or a bill payment comes up, they will alert you via email, text, or a pop-up app notification on your phone.
Reminders and alerts are another layer of the buffer between your funding and the payments you intend to make.
You can use them to make sure you’re prepared for changes to your account balance.
3. Try to Get a Reimbursement
There are no guarantees here, but sometimes a bank will reimburse the NSF fee.
Even if they won’t, it can’t hurt to ask.
The likelihood this will work depends on your bank and your account standing.
If it’s the first time you’ve been charged an NSF fee, let them know politely.
If you have a good relationship with your bank, chances are they will waive it for you.
Overdraft vs NSF Fees
There is some confusion between overdraft and NSF fees.
Each of these fees are for specific circumstances.
Overdraft means your bank account has a negative balance.
Your bank may enable a negative balance, up to a specified limit.
However, going into an overdraft (negative) balance normally comes at a cost.
The plus is that overdraft fees are normally lower than NSF fees.
NSF fees are specifically for when your cheque or PAD gets bounced.
If you do not have funds available for the cheque to cash or PAD to go through, including overdraft limits, you will have to pay the larger NSF fee.
Frequently Asked Questions
- Are NSF fees legal?
Yes, NSF fees are entirely legal. They are legal because they are included in the terms and conditions you agree to when opening an account where they are charged. Banks constantly update their terms and conditions. If you continue using their service, you agree to their terms and conditions, including potential NSF fees.
There are no Canadian laws banning NSF fees. Check your terms and conditions to see whether your bank is able to charge them.
- Can I get an NSF fee back?
In some cases, your bank may be willing to reimburse an NSF fee. You have to check with them to find out.
When discussing NSF fees with your bank, remember to be polite while stressing that you’re a good customer with an account in good standing. If you have a good history with the bank, they may agree.
It’s always worth it to ask. If they don’t agree to reimburse your NSF fee, you haven’t lost anything except a little time.