Whether you use one of the big five banks like RBC, CIBC, or TD or more digital-savvy banks like EQ and Tangerine Banks, you’re bound to encounter NSF under the right conditions.
Getting a grasp of your finances can be complicated as several factors are involved – bank charges, deposit fees, withdrawals, interest, etc. And while many are aware of what non-sufficient funds mean, not very many know what an NSF return fee aka NSF fee is.
Most people encounter the NSF fee deduction from their account but are oblivious to what it is for. Several things warrant an NSF fee in Canada. But before discussing that, let’s take a look at what the NSF return fee is in Canada.
What is NSF Return Fee (RTN NSF)?
Non-sufficient fund (NSF) is a term used to indicate that a checking account is overdrawn – that is, there is insufficient money in your account to complete a debit transaction or cover a cheque.
The non-sufficient fund fee (NSF fee), also known as a return fee in Canada, is the fee you are charged for NSF transactions. The NSF fee will vary depending on your bank. The NSF is often abbreviated as RTN NSF on bank statements.
Your bank can legally charge you if you initiate a transaction and it failed or is returned due to insufficient funds in the account when you initiated the transaction.
When your account has insufficient funds, and you write a cheque or try to make a debit transaction, your bank can do either of these two things:
- Cover the payment and charge you an overdraft fee, or;
- Reject the transaction and charge you an NSF fee.
An NSF fee is the money a bank charges you for writing a cheque from your account with insufficient funds. It also applies to situations where you don’t have enough money to cover automatic pre-authorized payments.
Average Cost of NSF Return Fee
In Canada, NSF fees are pretty high. The most incredible fact about the NSF fee is that it affects both the account holder and the cheque receiver. For the account holder, you will be charged a fee.
In fact, NSF cheques leave a black mark on your credit history for up to six years. You could also be charged with a criminal offense if it is found that you intentionally wrote a cheque that can’t be cashed.
The average NSF fee charged by most financial institutions in Canada is about CA$45 per transaction. Below are some of the current NSF fees charged by the prominent banks in Canada:
- TD Bank NSF fees – CA$48.00
- RBC Royal Bank NSF fees – CA$45.00
- Bank of Montreal NSF fees – CA$48.00
- Tangerine NSF fees – CA$25.00
- National Bank NSF fees – CA$45.00
As for the person receiving the cheque (payee), it can be challenging to recover the money owed. The time it takes to get notified about the bounced cheque may also take weeks. This will put you at a loss if you have spent the money, and then the funds get revoked.
Your account will go into a negative balance, and you will have to pay an overdraft fee. If you don’t have the resources to get the cheque’s issuer to pay up, you will have to go through the tiring process of going to small claims courts if the issuer doesn’t want to pay up.
This means that you must be very careful in doing business with sketchy or unreliable people who may give you NSF cheques even though it does not get reported to the credit bureaus and does not affect your credit score.
How To Avoid NSF Return Fees
It is pretty apparent now that NSF fees should be avoided cause it spells terrible news not just for the account holder or issue of the cheque but for the receiver of the cheque. To avoid NSF fees, you should do the following;
- Watch and track your spending
You should monitor your account balance to ensure that you have enough money to be cashed or enough to cover a transaction.
Save up enough money in your account for situations like automatic bill payments or, rather, cancel the automated payments and pay manually.
- Overdraft protection
You can apply for overdraft protection for your account. It is a form of protection offered by banks that prevent any transaction type from causing your account balance to fall beneath zero. This, in turn, stops any transaction from triggering an overdraft fee or non-sufficient funds fee.
So, instead of your account going into NSF status, it will be in overdraft status. However, this doesn’t guarantee that you won’t be charged NSF fees. You should note that your bank is totally in control.
You can also request that your bank waive the fee if your account is in good standing. This cannot be guaranteed to work, but it won’t hurt to try.
NSF fees in Canada can be expensive; hence it is best to avoid them. The best way to do that is to track your account balance and watch how you spend from it.
In case you eventually have to pay the fee due to circumstances beyond your control, ensure that you do so and compensate the payee (receiver of the cheque) as well.