NSF Fee – What It Is And How You Can Avoid It

April 4, 2020
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The ‘Non-Sufficient Funds’or NSF Fee is a penalty fee charged to a bank account when there is not enough money to honor a transaction on that account. In Canada, these fees range from $35 to $48. However, this fees is easily avoidable through proper financial management. Read on to find out more.

Fees, fees and more fees? Well, where the NSF fee is concerned, this can be avoided. 

You may have had the misfortune of encountering an NSF fee. This probably happened after you issued a cheque without checking how many funds were available in your account. These fees are applied when you write a cheque from an account with insufficient funds to honor the payment. When you do this, the bank will act in one of two ways. They will either reject the payment and charge you the unwelcome NSF fee, or they will process the transaction and charge you an overdraft fee instead. Additionally, banks also charge NSF fees when a pre-authorized debit payment is made on your account with insufficient funds.

NSF stands for Non-Sufficient Funds and, as the name already tells you, it is a term banks use when your account does not have enough money in it to complete a transaction. An account is classified as NSF status because of an overdraft, which is when you try to pay more money than you actually have in your account. An NSF cheque, otherwise known as a bounced cheque, cannot be honored simply because of insufficient funds. 

Understanding The NSF Fee

When you receive a returned cheque with an NSF stamp, this means the bank has not honored the cheque, indicating that the person who issued the cheque to you does not have sufficient funds to complete the transaction. The fees for this sort of mistake are high, starting at $5 for each cheque. But don’t worry just yet, as the fee will be charged to the payer, not to you as the payee.

These fees are a good reason to not keep all your eggs in one basket. Having another account with funds in it or even an overdraft line is a good backup, just in case the main chequing account runs low on funds. If the cheque payer has another bank account, then the bank can use that account to fund the cheque. Otherwise, there will be an NSF fee charged by the cheque issuer’s bank to the writer of the cheque (the payer).

Case Study: Clarise’s Experience With NSF Fees

Take, for example, this scenario. Clarise wrote a cheque for $3,000 to her florist without realizing that she only had $2,200 in her bank account.

Clarise's Florist to whom she issued the check that got her an NSF fee

What happens when Clarise’s florist deposits the cheque?

Clarise’s bank returns the cheque with an NSF stamp, simultaneously deducting a $45 NSF fee from her account as a penalty (she now has $2,155 in her account). Clarise must now go to her bank to make a deposit of at least $845 into the account to cover the florist’s bill as well as the NSF fee. She then writes another cheque to the florist and, this time, the bank honors the cheque.

You have to consider that, apart from throwing away $45, it’s very likely that Clarise’s florist will be very anoyed, since it can take a long time for the bounced check to be returned, for Clarise to make the new deposit, and for her florist to finally receive the payment.

What Are The Fees Like For NSF? 

NSF fees are quite high to prevent you from over-withdrawing from your account. Banks don’t like this because it means making a lot of useless operations and you certainly don’t want the bank charging you fees that you can essentially avoid. 

Most Canadian banks charge around $35 to $45 per bounced transaction. Here’s a rundown of current NSF fees charged by the biggest banks in Canada:

BankNSF Fee
TD Bank $35.00
PC Financial $42.00
Tangerine $45.00
RBC Royal Bank$45.00
National Bank of Canada $45.00
Desjardins $45.00
Scotiabank $48.00
Bank of Montreal $48.00

Here’s another example. If you have $200  in your BMO chequing account and you write a cheque for $250 to your caterer, you now owe $298 – $48 for the NSF fee, the $250 you still owe your caterer, plus you now have an annoyed caterer who’s cheque has bounced.

Fees For The Payee

As the payee or a receiver of a bounced cheque, you may also incur bank charges. It isn’t the best thing in the world to be on the receiving end of a bounced cheque. It’s a pain to deal with and, depending on the situation, it may be even harder to recover money the payer owes you.

In addition to the headache of recovering money owed to you, cheque recipients are charged a fee of between $20 and $40 or a percentage of the check amount.

Bigger banks have the ability to get the cheque issuer to pay their dues. On the other hand, it may be the case that the bank doesn’t solve your problem, so you’ll need to go to the claims court to recover the money the payer owes you. Considering that the fees for filing a claim in Canada can run for over $100, you will have to do the math to see if it makes financial sense to do so.

The waiting time is also another hassle. It can take a few weeks to get notified by the bank that your cheque has bounced.

Preventing NSF Fees

As the payer, avoiding NSF Fees is easy. The most surefire way of doing so is simply by ensuring you:

  • Have enough balance- Always make sure to have enough money in your account or ensure that whatever cheques you write are within your account capacity. Simply put, don’t write cheques you can’t cash.
  • Don’t commit fraud- It will be annoying on both ends – for you, as the payor and for the payee or receiver end. Having NSF on your cheques will leave a red alert on your credit history for a minimum of 6 years. If you continue writing bad cheques, you could be charged with fraud or obtaining credit under false circumstances.
  • Apply for overdraft protection- If you always write out cheques and you want to prevent this scenario from happening without having to keep tabs every time you do so, it is advisable to apply for overdraft protection. This is so you have something to fall back on in the event you do not have enough cash in your primary chequing account. Note that the bank will still charge an Overdraft Fee, but it’s always lower than the NSF fee. Depending on the bank you choose, the overdraft protection fees and amounts are different, so make sure you choose the one that fits your needs.
  • Save up enough on your account- If you have subscribed to automatic withdrawals from your bank account to pay bills each month, make sure you have enough cash for all payments. You do not want to inconvenience yourself on something that is supposed to make your life easier. You set up automatic bill payments to avoid paying late, but if you do not have enough money in your account, you’ll end up with more than just late bills.

What Did Clarise Do After Her Experience With Her Florist’s Cheque?

To prevent herself from getting another NSF fee, Clarice signed up for overdraft protection, giving the bank permission to tap into her savings account at the same bank in the event there is not enough money in her checking account.

Even so, she makes a note to be more careful next time she writes out a cheque. She makes it a habit to always check her balance when making payments, so she’ll also avoid paying overdraft fees.

What Can I Do If I Am Charged An NSF Fee?

Avoid NSF Fees

Ok, so you forgot to check your balance and the bank charged you an NSF fee. If this is the first time this has happened to you and your account has so far been in god standing, you can ask for the fee to be reversed. For the bank, continuing to do business with you is more important than a $45 fee. Here are a few things you can do if you get an NSF: 

  • Talk to your bank

While the fee is a nuisance, by talking to your bank advisors, they would be able to help you out. So be nice, be polite and be friendly. Call your bank and speak to them about what has happened and how you can rectify this issue. State the fact that this is your first time getting the NSF fee if that is the case. 

  • Set Reminders

The bank is likely to reject a refund if you have defaulted before. You can easily prevent this from happening by setting reminders. These reminders, on your email or banking app, can notify you if your balance dips below a specified threshold. Getting a reminder enables you to transfer money ahead of time or request a delay in processing the transaction. It also gives you time to let your bank withdraw from your secondary savings account.

  • Set a new baseline

You can also reset your baseline for your bank account balance so it prevents future issues. This will keep you in a better position and avoid any overdraft issues. 

Signing Up for Overdraft Protection

When you withdraw more money than what your account actually holds, you are over withdrawing and most banks allow it- this is called an overdraft. However as well know, when you overdraw, you have negative bank balance and a negative bank balance comes with the NSF fees. To avoid this, you can easily sign up for overdraft protection. Check this table out for overdraft protection:

BankOverdraft Protection
TD Bank $3.00 /daily transfer
PC Financial $5.00
Tangerine $5.00
RBC Royal Bank $5.00
National Bank of Canada $5.00
Desjardins Free for Eligible Cards
Scotiabank $5.00
Bank of Montreal $8.00

The Bottom Line on NSF Fees

As long as you maintain a good balance in your accounts and do proper money management, you can avoid paying NSF fees. It’s always a good idea though to have overdraft protection or the other option would be to have a secondary account that you can dip into in case any unexpected expenses come up. Even so, you would still be paying overdraft fees in such a case, so if avoiding fees is what you want, then correct money management is the way to go.

Make sure to use any tool your bank offers to keep track of your balance. This will help you avoid both NSF and overdraft fees.

If You Are Looking For a Low NST-Fee Bank

If you are considering opening a checking account with the lowest NSF fees, then the TD Bank is a good choice. It does not have any monthly fees as long as you maintain a minimum balance of $100. Their checking account is offered in three levels: Basic, Unlimited, and Premium options and all three have no monthly fees. You can also find a student, youth, senior and US Dollar option for the savings and checking accounts with TD Bank.

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