How To Avoid NSF And Overdraft Fees In Canada

If you’re not paying close attention to your bank balance, it’s easy to dip into the red and rack up non‑sufficient funds (NSF) and overdraft fees. To avoid spending more money than you need to, it’s key to avoid NSF and overdraft fees, and that starts with understanding how your bank processes transactions and how quickly your balance can change. 

With a few simple habits — like monitoring your balance, setting alerts, and planning for upcoming withdrawals — you can stay ahead of potential shortfalls. Building these practices into your routine helps protect your money and keeps unnecessary banking charges from eating into your budget.

Key Points:

• NSF and overdraft fees occur when payments post to your account before enough funds are available.
• Consumers can easily get caught off guard when balances change quickly or multiple withdrawals occur close together.
• Simple habits like monitoring balances, setting low-balance alerts, and keeping a small buffer can prevent most fees before they happen.
• Starting in spring 2026, NSF fees will have a new cap that limits how costly a single missed payment can be for consumers.

What Are NSF Fees?

NSF fees — short for “non‑sufficient funds” fees — are charges your bank applies when a payment or withdrawal tries to go through but your account doesn’t have enough money to cover it. Instead of approving the transaction, the bank rejects it and adds a penalty for the failed attempt. 

These fees can stack up quickly if multiple payments are deducted from your account while the balance is low, which is why it’s important to track your spending and upcoming withdrawals.

Typical NSF fees are usually around $45. However, these fees will be capped in 2026. More on this below.

Who Can Charge NSF Fees?

In Canada, banks and credit unions charge NSF fees when a cheque, pre‑authorized debit, or transfer can’t go through because your balance is too low. 

Other entities may also charge NSF fees, including utility companies, lenders, telecom providers, subscription services, and even landlords.

NSF Fee vs. Overdraft Fee

An NSF fee and an overdraft fee both relate to having insufficient funds, but they apply in different situations and work very differently.

• NSF Fee: An NSF fee is charged when a transaction is rejected because your account doesn’t have enough money. The payment doesn’t go through, and the bank charges you for the failed attempt.
• Overdraft Fee: An overdraft fee, on the other hand, applies when the bank lets the transaction take place even though your balance is negative. Instead of declining the payment, the bank temporarily covers the shortfall and charges you for going into the red. Overdraft fees can also recur daily or monthly, depending on the bank’s policy, making them potentially more expensive over time.

How To Avoid NSF Fees And Overdraft Fees

Here are some tips to help you avoid these additional and unnecessary charges.

Stay Organized

Anticipating your next payment is essential to avoiding overdraft fees. Knowing exactly when your next payment is due and how much you owe will help you be as prepared as possible and therefore have the right amount in your account at the right time. 

Enrol In Automatic Payments

Writing cheques to cover all your bills and monthly expenses can be confusing and may lead to mistakes, which could result in overdraft charges. Instead, setting up automatic payments allows you to better anticipate how much will be withdrawn from your account and when. Setting up automatic payments is easy and can typically be done through your bank’s online banking portal or as a payment method from merchants.

Stay Up-To-Date On Your Account Activity

Reviewing your account’s statements regularly will help you better understand where your money goes. This will also give you a chance to verify any hidden fees that may be applied to your account each month.

A good rule of thumb is to do a monthly check-in with your account to keep tabs on your balance.

Maintain A Cushion

Anticipating the unexpected can help avoid additional fees. Ensuring that you have a few extra dollars in your account after you’ve accounted for all bill payments can help you avoid overdraft fees and help you better manage your finances.

Using your bank account to hold your emergency fund is an excellent way to keep it easily accessible while protecting it from NSF fees.

Sign Up For Alerts

Signing up for account alerts helps you spot low balances before a payment goes through, giving you time to transfer money or adjust your spending. These notifications act as an early warning system so you’re not caught off guard by automatic withdrawals or pending charges. This makes it much easier to prevent NSF fees altogether.

Consider Overdraft Protection

Overdraft protection can help prevent declined transactions and avoid NSF fees by automatically covering shortfalls when your balance dips below your available balance. It adds a safety net for unexpected timing issues, like delayed deposits or early withdrawals. 

However, it can also lead to costly overdraft charges if you rely on it too often, so it’s important to use it carefully and monitor your account regularly.

Learn more: What is Overdraft Protection

Be Wary Of “Holds”

A “hold” happens when a merchant temporarily reserves part of your balance, and it can push your account closer to zero than you realize. This is common when you rent a car or book a hotel room. In these cases, the merchant “holds” a certain amount of money as a safety net. 

But because the money is set aside but not yet shown as a final charge, your available balance may look higher than it truly is. When another payment goes through before the hold is released or adjusted, your account can land in negative territory and trigger overdraft fees.

How to Avoid Multiple NSF Fees When a Lender Retries a Payment

Here are some tips to avoid multiple NSF fees when a lender attempts to process a payment again.

• Request A Stop Payment: Ask your bank to place a stop payment on the specific transaction. This prevents the lender from trying to withdraw the funds again, though your bank may charge a small fee for the service.
• Cancel A Pre‑Authorized Debit Agreement: If the payment is set up as a pre-authorized debit, you can cancel it directly with the lender. Once cancelled, they can’t legally retry the withdrawal.
• Set Up Automatic Payments: Choosing automatic payments through your bank gives you more control over pre-authorized debits. You decide when money leaves your account, reducing the risk of surprise withdrawals.
• Read Your Pre‑Authorized Debit Agreement: It outlines how frequently a lender may attempt to withdraw funds again and what advance notice they’re required to provide.

What Can Cause An NSF Fee or Overdraft Fee?

Several situations can trigger either an NSF fee or an overdraft fee, including the following.

• Pre‑authorized payments, like subscriptions or loan payments, are withdrawn when your balance is too low.
• Writing a cheque that gets deposited or cashed before you have enough funds.
• Debit purchases that exceed your available balance.
• ATM withdrawals that cause your account to go below zero.
• Timing issues, such as deposits clearing later than expected, while payments clear immediately.

Learn more:  Everything You Need To Know About NSF Fees & Bounced Cheques

Additional Reading

Bank Withdrawal Fees

Inactivity Fees | Why Businesses Charge You For Not Using Their Product

How To Spot And Avoid E-Transfer Scams

Bottom Line

Staying ahead of NSF and overdraft fees comes down to awareness, planning, and smart banking habits. When you keep an eye on your balance, use alerts, and understand how your transactions are processed, you’ll have a lot more control over your money. With consistent habits in place, avoiding NSF and overdraft fees can save you money.

FAQs

References

¹CBC News. (2025, March 19). Non-sufficient funds fee will be limited to $10 in Canada starting next year. CBC News.