Non-sufficient fund (NSF) fees are a type of banking fee you might have dealt with in the past. If you've ever lost track of your account balance and written a cheque you couldn't cover on the date it was cashed, you're not alone.
Life is unpredictable and that can mean unexpected payments can easily add up and get away from you. Keeping track of exactly what's in your chequing account isn't always a simple task.
Unfortunately, having insufficient funds when a payment comes in means you will need to pay a non-sufficient fund fee (NSF). Below we’ll explain more about NSF fees—also called non-sufficient funds fees—and how to avoid them.
What does it mean to have non-sufficient funds?
Non-sufficient funds (NSF) take place when you initiate a withdrawal from your bank or credit union by cheque or pre-authorized debit, but your account doesn’t have enough money to cover it.
Unlike with automatic banking machine withdrawals or those at a teller, a cheque works like an IOU without that mechanism to check your balance on the spot. With pre-authorized transactions, payments come out of your account on a certain date you’ve previously agreed to.
What happens if I bounce a cheque?
If you write a cheque, but don't have the funds to honor it on deposit, the financial institution will reject it (unless you have overdraft protection). These are most often called bounced cheques.
When a cheque bounces, it can have different repercussions. The person you paid with the cheque, the payee, won't receive their money, which can certainly affect them—but also you. If their bank or credit union charges them a fee (which is typical), you may well be on the hook for it, and that's in addition to the money you already owe them. Additionally, your bank or credit union may apply an NSF fee to your account (also typical), a penalty that usually shows up on your next bank statement.
Do NSF fees happen with my debit card?
If you use point-of-sale (POS) for a transaction using your debit card without sufficient funds in your account to cover the purchase, it will generally not trigger an insufficient funds fee. Similar to when your credit card is denied, an error appears and the transaction fails to complete.
How much are NSF fees?
NSF fees can range in price, typically between $45 and $50 per NSF charge. Check with your bank for their specific rates and policies.
What are the penalties for non-sufficient funds?
If a payment is returned due to insufficient funds, penalties might include:
- An NSF fee
- Fees charged by the payee's bank
- Having your bank close your account should you be routinely overdrawn
Incidents of insufficient funds are not reported to the credit bureaus and will likely not affect your credit score.
What is the difference between NSF fees and overdraft fees?
Banks or credit unions charge an NSF fee when you don't have the funds in your account to cover a payment. At times your bank may cover the payment for you temporarily rather than charge you an NSF fee. In these cases, you would likely be charged an overdraft fee instead. Non-sufficient funds fees are typically more expensive than overdraft fees. Consider adding optional overdraft protection to your account. Ask your financial institution what options are available.
Tips to avoid NSF fees
The best way to deal with NFS fees is to avoid them altogether; here are some ways you can work to steer clear of them.
- Monitor your chequing account: Whether you use online banking or bank in-person, make a habit of keeping tabs on how much is in your chequing account. If you find your funds are running low, you might want to transfer money from your savings account. If possible, make a habit of keeping a buffer amount in an account you can easily transfer to your chequing account.
- Set up bank account alerts: Many banks and credit unions make monitoring easier by offering automatic alerts that send notifications to you when activity happens in your account, like Scotia InfoAlerts. Sign up and take the guesswork out of your banking.
- Don't assume payments will be processed in chronological order: Just because you write one cheque on the first of the month and another on the 15th doesn't mean that the payee will deposit them on those dates or that the bank will process them in that order. Bank payment processes, holds, and the date the payee deposits the cheque can all affect when the funds are requested. Maintain a buffer to cover all outstanding payments.
- Set up overdraft protection: Overdraft protection is an optional service you can initiate that will honour transactions up to a pre-approved limit without returning an NSF fee when you don’t have funds in your account. These plans are typically available as a monthly charge service or on a per-incident basis. Check with your bank to see what they offer and how this additional service can add some piece of mind to your finances. Learn more about overdraft protection at Scotiabank here.