Avoid Overdraft Fees and NSF Charges

When you’re down on your luck, it may seem like every inconvenience is amplified. Case in point, having to pay an overdraft fee when your account is overdrawn. While on a good day it may not seem like a big deal. But on a bad day, it could feel like the last straw on the proverbial camel’s back. At such times, you may wish that there was a way to avoid overdraft fees when your account is overdrawn. Lucky for you, we’re spilling the beans on how you can do just that.

Before we dive in, let’s first understand what overdraft fees and non-sufficient funds (NSF) charges are. Additionally, you’ll discover when these fees and charges are levied to help you avoid paying them.

What is an overdraft fee?

You pay an overdraft fee whenever your bank account has a negative balance. Let’s try to understand exactly what this means by examining some of the terms in the definition of bank overdraft fees.

Your bank balance is the amount that is maintained in your account. An overdraft fee is charged when your balance is negative. What is a negative balance? It is when there are withdrawals made from your account even after all the money in your account has been spent. How can that be possible? Your bank or credit union may allow for a certain amount to be withdrawn even after your account is empty. It’s a privilege granted to customers/credit union members. You’ll be charged an overdraft fee for having a negative balance plus, you’ll be charged interest on the amount you’re in essence “borrowing” by having that negative balance. 

What are NSF charges?

NSF stands for non-sufficient funds. An NSF charge is the fee a bank will levy if there are “items returned” that aren’t paid. For example, an automatic bill payment you have set-up that is rejected because you don’t’ have enough money to pay it. Or any cheques issued where your account does not have enough funds to honour that cheque. Your bank will charge you a fee known as an NSF charge to compensate for the administration work that went into the attempt to process your payment or cheque.

*Rates and fees subject to change without notice.

Let’s look at an example to understand this better.

Rose did not realize that she had overdrawn her bank account. When a bunch of unexpected expenses had to be met, she was quick to withdraw and even quicker to issue cheques. However, when her balance dipped below $0, she had to pay overdraft fees and interest. Even worse, when the cheques she issued bounced, she had to pay NSF charges too. On top of her existing expenses, she had to deal with paying overdraft fees, interest, and NSF charges as well! For her three items that put her into overdraft, plus her three cheques that were rejected due to NSF, her fees amounted to $150! If only she had known how to avoid these fees and charges like you are about to.

Tips to avoid overdraft fees and NSF charges:

Tip #1: Activate Low Balance Banking Alerts

Now that banking has gone digital, banking has gotten more convenient than ever before. At Innovation, we offer low balance banking alerts. What do they do? In simple terms, you will get a notification whenever your bank account balance is low. This allows you to quickly make sure your bank balance is maintained. Moreover, it will also help you to be aware and not make any withdrawals while your account is running low.

You can receive these low balance banking alerts via text or email so you never miss an update and can always be in the know when your bank balance is low. You can also change your threshold amount i.e., would you like to be alerted if your account balance dips below $100? $50? $25?

Tip #2: Opt for Overdraft Protection

You can prevent overdraft fees from happening by opting for overdraft protection. What is overdraft protection? In simple terms, it is an agreement that you make with your bank that they will not charge overdraft fees. You will have to pay a small amount for overdraft protection, but the protection fee may be quite a bit less than the overdraft charges you would pay when overdrawn (like with Rose in our example above). Overdraft protection comes with other perks as well. You will also be exempt from NSF charges as your cheques will not bounce due to insufficient funds. It will also keep you safe from any embarrassment that you may face if you cannot withdraw funds or your cheques bounce. To add to this, you will also be able to withdraw funds in times of emergency.  Always keep in mind overdraft protection comes with a limit. Be sure you know the maximum amount you can be overdrawn.

Tip #3: Get a Line of Credit

Another option when you need funds is opting for a line of credit. A revolving line of credit is connected to your chequing account. It allows you to meet any expenses that may spring up from time to time without having to incur overdraft fees or NSF charges.

You might be wondering how a line of credit is different than a loan. It’s actually a small personal loan but offers lower minimum payments than other loans and lower rates than you’d pay on a credit card. Plus, you only pay interest on the money you use.

Think back to the example we used to illustrate how overdraft fees and NSF charges made poor Rose miserable. If she had low balance banking alerts, she would have immediately realized that her balance was low and taken steps to remedy the situation. She would have known better than to issue any cheques that would probably bounce, thus avoiding having to pay any NSF charges. Or, she could have opted for overdraft protection, knowing she’d be overdrawn until her next paycheque. If she knew she needed a bit more money than overdraft protection allowed, she could have applied for a line of credit to make sure her cheques didn’t bounce.

You can never know when an emergency may strike, or when you will need to make additional withdrawals on your overdrawn bank account. If the COVID-19 pandemic has taught us anything, it is that life can be completely unpredictable. So, it’s always better to be proactive in avoiding additional fees and charges at your bank or credit union. We hope the tips above can help you to do just that. By now, you should be able to take the steps required to avoid paying overdraft fees and NSF charges when your bank account is overdrawn. Always opt for low bank balance alerts or go a step further and opt for overdraft protection. If not, you can even get a line of credit to make sure your bank balance always has sufficient funds.