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Non-sufficient funds (NSF) is a term used in banking to indicate that your account does not have enough money in it to cover a cheque or debit transaction. An NSF cheque is a cheque that cannot be honoured because of insufficient funds and is usually referred to as a bounced or bad cheque. An account falls into NSF status through overdraft—the act of withdrawing more money than you have in your account.
When you write a cheque from an account with insufficient funds, the bank can reject the payment and charge you an NSF fee, or it can cover the transaction and charge you an overdraft fee. You can also find yourself in an NSF situation if you don’t have enough money in your account to cover a pre-authorized debit, such as an automatic bill payment.
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Because banks don’t want you to overdraw your account, NSF fees are quite high—most Canadian financial institutions charge around $45 per transaction. So if your chequing account has $50 in it and you write a cheque to your roommate for $100, you’ll now be $95 in the red and owe a $45 fee for a $100 transaction—plus you’ll have an angry roommate. If you were trying to pay a merchant for goods and/or services, they may also charge you a fee, plus any applicable fees resulting from late payment.
Here’s a breakdown of the current NSF fees charged by the biggest banks in Canada:
|Bank of Montreal||$48.00|
|RBC Royal Bank||$45.00|
Being on the receiving end of a bad cheque can be awkward, costly, and a flat-out pain to deal with. Depending on the situation, it may be hard for you to recover the money you’re owed. It can take weeks for your bank to notify you that a cheque has bounced, so if you’ve already spent the money, the bank revokes the funds and your account goes into a negative balance, you’ll be charged an overdraft fee. While big companies have the clout and resources to get the cheque writer to pay up, individuals may have to go to small claims court to recover the money they’re owed if the issuer of the cheque is particularly defiant or sketchy.
It’s pretty simple to avoid NSF fees: watch your account balance, and don’t write cheques that can’t be cashed. Besides annoying the payee and costing both sides time and money, NSF cheques leave a black mark on your credit history for six years. Moreover, you could be charged criminally if you knowingly write bad cheques to commit fraud or obtain credit under false pretenses.
If you’re concerned about shortfalls in your account and think you’ll be bouncing cheques more than twice a year, you may want to apply for overdraft protection to have an extra cushion for your account.
If you use automatic withdrawals from your bank account to pay bills each month, save up enough cash to cover at least one month’s worth of bill payments. Automatic bill payments are supposed to be an easy way to avoid late fees on your bills, but if your account dips into non-sufficient funds territory you could be charged an NSF fee by your bank and a late fee from the company owed payment. If you frequently lose track of when those payments come out, cancel your automated payments and switch to paying manually using online banking.
As the saying goes, you don’t get what you don’t ask for. If you’re a customer with an account in good standing, it is possible to convince your bank to waive an NSF fee. Address the issue as soon as possible by picking up the phone and explaining the situation to your bank’s customer service line—even if it’s your fault. Be polite but direct. If you’re a longtime customer and this is the first time you’ve asked for a fee to be waived, point that out. However, this shouldn’t be your go-to solution for getting out of trouble. If you habitually bounce cheques, it’s likely you’ll be turned down.