Personal finance can be challenging for many; from managing day-to-day expenses to juggling bills, it can sometimes seem like a never-ending struggle. Among these financial challenges are often fees that come with using a personal bank account, including NSF (non-sufficient funds) fees and overdraft fees.
NSF and overdraft fees are some of the most common fees that many of us encounter when banking. Despite their similar functions, there are quite a few differences between the two. Banks will charge an overdraft fee if you don’t have enough funds in your account for the transaction.
An NSF fee, on the other hand, is charged when your account is overdrawn and the transaction is declined by the bank. Fortunately, these types of fees can be avoided with careful budgeting and monitoring of your day-to-day spending.
In this blog, iCash, a leading online loan provider in Canada, will help you better understand the difference between NSF and overdraft fees and how to take actionable steps to avoid paying them altogether.
Understanding NSF and Overdraft Fees
NSF stands for “non-sufficient funds,” and this fee is charged when your bank account doesn’t have enough money to cover a transaction or a payment. This can happen in various scenarios, such as when you’ve made a purchase or payment that exceeds your account balance, or if automatic payments have been processed when you don’t have enough funds in your account to cover it.
An overdraft fee, on the other hand, is charged when you spend more than what you have in your chequing account and the bank temporarily covers the difference. Essentially, an overdraft fee is a fee charged by your bank for lending you money when you don’t have enough funds in your account. You can also incur interest charges on any outstanding overdraft balance. In Canada, overdraft interest is usually between 19-22%, making it an expensive, high-interest fee.
Put simply, the difference between these two types of fees is that overdraft fees are charged when you overdraw your account, while NSF fees are charged when a transaction is returned due to insufficient funds.
How Much Do Banks Charge for NSF and Overdraft Fees in Canada?
Both NSF and overdraft fees generate significant revenue for banking institutions. And while the penalty amount can be similar, they are both quite costly if not handled properly.
Usually, NSF fees are less expensive than overdraft fees, but this can vary by bank. NSF fees can range anywhere from $25 to $50, while overdraft fees can be as high as $35 to $40.
NSF fees by Canadian Banks
You can expect the following NSF fees in Canada by some of the most popular banks per dishonoured cheque or pre-authorized payment:
NSF Fee for BMO:$48
NSF Fee for CIBC:$45
NSF Fee for RBC:$45
NSF Fee for Scotiabank:$48
NSF fee for TD:$48
NSF fee Tangerine:$45
Overdraft Fees by Canadian Banks
Banks charge different fees for overdraft protection, including a monthly fee or a pay-per-use fee. The monthly fee is a flat charge that applies whether or not your account goes into overdraft during the month. This type of fee typically costs around $5 and can be a money-saving option for people who frequently go into overdraft.
The pay-per-use fee requires a flat charge each time you use overdraft protection, which is also typically around $5. This option might be more cost-effective for those who hardly ever go into overdraft.
Here’s a breakdown of overdraft fees by Canadian banks, including monthly, pay-per-use, and overdraft interest (on outstanding overdraft balances):
Overdraft Fee for BMO: $5 monthly fee, $5 pay-per-use, 21% interest
NSF Fee for CIBC: $5 monthly fee, $5 pay-per-use, 21% interest
NSF Fee for RBC: $5 monthly fee, 22% interest
NSF Fee for Scotiabank: $5 monthly fee, $5 pay-per-use, 21% interest
NSF fee for TD: $5 monthly fee, $5 pay-per-use, 21% interest
NSF fee Tangerine: $5 monthly fee, 19% interest
The Dangers of NSF and Overdraft Fees
If you’ve ever incurred NSF or overdraft fees, you know that they are more than just inconvenient - they can be damaging to your financial future. But, how? We’ll explore the potential consequences of incurring NSF or overdraft fees, and how can they impact your finances below:
Added expenses: These fees vary depending on your bank, but, as mentioned above, they could range from $25-$40 per transaction.
Credit score impact: NSF fees are not reported to credit bureaus, but if your account is sent to collections as a result of unpaid NSF fees, it can have a negative impact on your credit score.
Excess debt: If you're not careful, you could find yourself in a cycle of debt, where you're constantly paying off banking fees and struggling to make ends meet.
Financial stress: The stress of managing your account balance and covering the expenses of NSF or overdraft fees can take an emotional toll on yourself and others around you.
Common Reasons for Overdrawing or Having Insufficient Funds
Overdraft fees and insufficient funds can be a financial burden that causes unnecessary stress. By knowing the most common reasons for these events, you can make better financial decisions and avoid the accompanying fees.
1. Lack of Budgeting
One common reason for overdrawn accounts and non-sufficient funds is a lack of budgeting and financial planning. When individuals don't have a solid understanding of their expenses and income, they can overspend and end up with overdraft fees.
To stay on top of your finances, it’s essential to keep track of how much money is coming in and going out each month. You can use online resources to create a personal budget that meets your needs and set aside funds for unexpected expenses or emergencies.
2. Delayed Transactions
Delayed transactions can be another common reason for going into overdraft. Transactions may take a while to clear and post in your account, and if you're not keeping track of these, you may accidentally overspend.
Many purchases like gas, restaurants, and other online transactions are not immediately processed, and it's important to understand how long your transactions may take to avoid NSF fees and other charges associated with overdraft protection.
3. Pending Transactions
An often overlooked reason for insufficient funds is pending transactions. Many banks will show "available balance" and "current balance," but the current balance may not reflect charges that have not yet been posted to your account as transactions. These pending transactions can cause a false sense of security, leading people to overspend and overdraft.
4. Automatic Payments
Payment schedules are another cause of overdrawn accounts. People may have scheduled automatic payments that may conflict with income arrival, leading to insufficient funds when there's an unexpected expense or delay in payment. Understanding your bill's due dates and when your paychecks arrive can help you avoid costly fees.
5. Forgetting to Record a Transaction
Another common scenario leading to account overdrafts and insufficient funds is managing forgetting to record a transaction. It can be difficult to keep track of balances and transfers between different accounts, and mistakes can easily happen. If you have multiple accounts, try to keep them in order and check them consistently to ensure no transaction is overlooked.
6. Unforeseen Expenses
Unforeseen expenses can also cause account overdrafts and insufficient funds. For example, if your vehicle needs to be repaired or you experience a medical emergency, these are often unexpected expenses that can disrupt your budget. Planning and accounting for extra expenses in your budget can help limit the impact on your account.
What to Do if You’ve Been Charged NSF or Overdraft Fees
Both NSF and overdraft fees are common and can be frustrating to deal with. Thankfully, there are steps you can take to get them waived, especially if you’ve been charged unfairly or if this is your first time incurring the fee.
If you've been charged an NSF or overdraft fee and feel like it was unfair, the first thing you should do is call your bank. Explain the situation and ask if there's anything they can do to waive the fee. Most banks have policies in place that allow them to waive or refund banking fees in certain situations. For example, if this is your first time incurring an overdraft of an NSF fee, your bank may be willing to make a one-time exception.
Additionally, if you’ve encountered an unforeseen circumstance, your bank may be willing to refund the fee altogether. To prove your case, you could provide the customer service representative with evidence of recent bills that were paid on time - anything that demonstrates your commitment as a loyal customer who is simply going through a difficult time.
How to Avoid NSF and Overdraft Fees
To avoid NSF and overdraft fees in the future, there are a few things you can do. First, keep track of your account balances. This can be as simple as writing down all your transactions in an online budgeting app that tracks your spending.
You can also set up text or email alerts with your bank so you're notified when your balance gets low. Another option is to link your checking account to a savings account or credit card to cover any transactions that would overdraw your account.
Whatever option you choose, being more mindful of your spending and staying up-to-date with all of your account balances will allow you to become more financially secure over the long term.
Consider iCash and Never Pay Banking Fees Again
Both NSF and overdraft fees can be expensive, but fortunately, there are more cost-effective borrowing options available. With iCash, you can easily get a short term loan online and borrow up to $1,500 within just 2 minutes, regardless of your credit score. Get started today by downloading the iCash smartphone app or by creating your online account.
