How to Manage Overdraft and Non-Sufficient Funds (NSF)

What are Non-Sufficient Funds (NSF)?

The term non-sufficient funds (NSF), also known as insufficient funds, refers to a situation in which you do not have enough money to cover an expense. You may receive a notice of “non-sufficient funds” or “insufficient funds” on a bank statement, ATM terminal, or on a receipt when your bank balance isn’t high enough to cover a pending transaction.


NSF also describes fees charged by banks and lending institutions when a cheque or other payment is presented but cannot be covered by the balance in your account. NSF cheques are referred to as “bounced” cheques. If a bank or lender receives an NSF cheque, they can refuse the payment and charge the account holder with a fee.



What is Overdraft?

An overdraft occurs when money is withdrawn in excess of what is available in your account. It is an extension of credit provided by a lending institution when an account balance reaches zero. Overdraft allows you to continue to withdraw funds from your account, even if it has no money or insufficient funds to cover the amount of the withdrawal.


Simply put, an overdraft is a set amount of money that a traditional lending institution, such as a bank, allows a customer to borrow when their account doesn’t have enough funds to cover it. The lending institution covers payments that would otherwise be rejected, or in the case of cheques, would bounce. There is interest on the loan, which similar to credit cards, is usually around 21% to 22%, and typically a fee associated with each overdraft withdrawal. These interest rates are very high, therefore, it is important to leave your account in overdraft for as little amount of time as possible.



NSF vs. Overdraft

Non-sufficient funds and overdraft are two different things, although they are both related to a deficiency of funds and can bring about fees. If a transaction is declined due to insufficient funds it is considered an NSF fee. Also, having insufficient funds to cover transactions can lead to outgoing cheques bouncing, which could impact vendor relationships, since they can’t rely on you to make payments on schedule. If the transaction is covered by your financial institution, it may charge you with an overdraft fee.



How to Avoid Overdraft and NSF fees:

Overdraft and NSF fees can be costly. Here are some things you can do to prevent the accumulation of these fees in the future:


  1. Closely monitor your account balances

Although this may seem obvious, keeping a close eye on your account balances and charges is crucial to ensure you don’t run into a situation where you are being charged overdraft or NSF fees. Banks are not legally required to notify you when an overdraft or NSF fee is applied and deducted from your account. You are responsible for keeping a current and accurate cheque/transaction record. By balancing it with your monthly statements you will know your account balance and prevent overdrafts.


  1. Set up Account Alerts

The majority of banks will allow you to set up email or mobile alerts and notifications if your account balance is running low. This feature can be extremely useful for tracking your account balances and transactions. By receiving notifications directly to your mobile device, you can ensure that you are maintaining a healthy account balance and you are not missing any payments.


  1. Link a Secondary Account

Some banks will allow you to connect a secondary account to your primary one. This way, if you overdraw from your primary account the bank will automatically move funds from your secondary account to cover any pending transactions. Contact your bank to see if this option is available to you.


  1. Request a Refund

It is possible to negotiate lowering or even completely waiving overdraft and NSF fees. Contact a customer service agent at your bank and make a request to have the fees removed. It is a possibility to get fees back, but there are a number of things you can do to proactively avoid incurring these fees.



Overdraft and NSF fees can be irritating and put a strain on your financial stability. You can expect to receive a fee if you conduct a transaction or make a withdrawal without enough money in your account to cover the expense. Fortunately, with intelligent and responsible money management you can avoid paying fees for non-sufficient funds.


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