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When banking, you may, unfortunately, encounter bounced cheques and non-sufficient funds (NSF) fees. These can occur if a preauthorized payment is pulled from your account there isn’t enough money to cover it or if you write a cheque and it bounces because of insufficient funds in your account. In order to avoid both of these situations, it is important to educate yourself on why a cheque bounces and the other issues surrounding NSF fees.

What Happens When A Cheque Bounces? 

  • NSF Fee  – If a cheque bounces, it is likely you will be subject to an NSF (non-sufficient fund) fee. An NSF fee occurs when you write a cheque or a preauthorized payment is debited without enough money in your account.
  • Overdraft Fee – Overdraft fees come into play when your account is charged (payment or withdrawal) more than what is available in your account. Most banks will allow you to spend more than what you have as part of an overdraft protection service. This service is not free and is not always available to all clients. Most banks charge either a flat fee and/or a percentage.

Who Can Charge NSF Fees? 

  • Banks – Your bank will charge you an NSF fee when a payment is taken from your account and there is not enough money to cover it.
  • Lenders – Lenders will typically also charge an NSF fee when they try to pull a payment from your account and there is not enough money to cover it.

How Much Do Banks Charge For NSFs In Canada?

BankNSF Fee
TD Bank$48
Bank of Montreal$48
Royal Bank of Canada$45
Scotiabank$48
CIBC$45
National Bank$45
PC Financial$45
Tangerine$25
Simplii Financial$45

Reasons A Cheque Or Payment Bounces

When it comes to bounced cheques and insufficient, funds there are many causes you should be aware of.

Lack Of Funds

If you write a cheque to someone and do not have sufficient funds in your account to cover it, the cheque will bounce and you will likely receive an NSF fee. This can happen if you are anticipating a deposit to your account and you write a cheque with the expectation that the aforementioned money will be in your account and it ends up being delayed.

Bank Error

Although it is highly unlikely, there is a chance your bank could think you do not have sufficient funds in your account to cover a cheque when, in fact, you do.

Cheque Deposit Was Delayed

This can occur when you write a cheque at a time when you have sufficient funds, however, the cheque was not deposited until later when there was not enough money in your account.

Closed Account

This can occur if you change banks and a cheque you had written was deposited after your account was closed. Therefore, the cheque would bounce.

Fraud

This could occur when someone writes a cheque knowing they do not have sufficient funds to cover the amount. For example, an individual purchases an item with a cheque, knowing they cannot afford it and the person they have bought from will be left unable to collect the money they are owed.

What Should You Do If You Received A Bounced Cheque? 

Being on the receiving end of a bad cheque can be costly and to be frank, awkward. Although it depends on the situation, it can be difficult to recover the funds you are owed. It can take a while for the bank to notice that the cheque has bounced, and in that time it’s possible you have already spent the funds. If you have spent the funds, the bank will revoke them which can possibly put you into overdraft or a negative account balance. If you’re lucky enough to have a large bank backing you up, they will have the means to get the cheque writer to pay up properly. If the cheque writer is particularly dodgy or sketchy, you may have to seek legal help to recover the money you’re owed.

How To Avoid Bounced Cheques And NSF Fees? 

  • Overdraft Protection -This service is offered by most banks and allows customers to put their accounts into overdraft, for a fee, and would therefore allow them to avoid bounced cheques and NSF fees by overdrawing their chequing account. This service typically costs $5 a month as well as a percentage of the overdraft.
  • Keep An Eye On Your Account – It is always essential that you stay on top of your finances and pay attention to your deposits, transactions, balances, and bills to ensure that you are not spending more than you can afford. A helpful way to do this is to maintain a monthly budget and track your expenses and income.
  • Cash Cushion – By keeping a certain amount of cash in your account, ideally a surplus, you can avoid NSF fees and bounced cheques as there will always be cash available to cover your costs.

Pros And Cons Of Overdraft Protection

If you’re considering paying for overdraft protection to help you avoid any unnecessary NSF fees, you should consider the pros and cons first.

Pros

  • Avoid cheques bouncing and NSF fees
  • Avoid late fees pertaining to bills
  • Your transactions will go through
  • Helps you avoid embarrassing and awkward situations

Cons

  • Extra cost
  • Interest charges
  • Influences spending decisions
  • Eventually, you will need to pay for the expense that overdrafted your account

NSF Fee FAQs

Can I get my NSF fees waived? 

Yes, you can, although it depends on the circumstances and the bank you are with. Normally, if your account is in good standing you can plead your case and get the charge removed.

Will an NSF affect my credit? 

Bounced cheques do not get reported to credit bureaus and therefore will not directly affect your credit score. However, the late payments that result in NSF fees can compromise your credit score if they are reported to credit bureaus. If you do not pay your NSF fee the bank can take your debt to a collection agency. Collection accounts will affect your credit and stay on your record for around 6 years after the date of the last payment.

How long can you stay in overdraft? 

Overdraft protection acts more like a credit card than a loan. A loan has to be repaid over a specific amount of time but with overdraft protection, you can add to it or pay it all off in one day. 

Bottom Line

It is best to avoid NSF fees and bounced cheques, however, things do happen and it is best to cooperate with your bank to find the right solution for you. By keeping a close eye on your finances and keeping a cash cushion in your account, you can steer clear of these situations.

Caroline Macdonald avatar on Loans Canada
Caroline Macdonald

Caroline is a 4th year commerce student at Memorial University of Newfoundland pursuing a focus in finance. She is a member of Memorial University’s student managed investment fund and acts as a sector manager in the industrial and financial sectors. Caroline joined the Loans Canada team in 2021 and rediscovered her passion for writing and media creation. In her free time she enjoys spending time with friends and family and reading.

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