If you’re reading this, then you probably just received an NSF notice or an RTN NSF fee. If you’ve never received one before, then you’re probably wondering just what these three-digit codes stand for.
An RTN NSF fee is a fee that’s charged to an account holder when a charge is denied due to non-sufficient funds in the account.
This can often happen if an automatic debit comes out of your account without sufficient funds in the account to cover the cost. Below, I’ll explain a bit more about NSF fees, why banks charge them, and how to over overdraft fees in the future.
Before we jump into the rest of the post, let’s start by defining both of these key terms:
- RTN: Routing Transit Number (the routing number of your bank account)
- NSF: Non-Sufficient Funds notice
In essence, receiving an RTN NSF fee notice means that an account debit associated with your bank’s routing number was cancelled due to non-sufficient funds in the account.
For example, if you only have $500 in your account, and your apartment rent for $600 is auto-drafted from your account, then your bank may deny the transaction since you don’t have enough money to cover the charge. Additionally, the bank may charge an NSF fee as a penalty for the inconvenience.
NSF fees can vary from one financial institution to another and are entirely dependent on the agreement you have with your bank. The majority of major banks in Canada charge NSF fees that range between $45 and $65.
In some cases, if you’ve issued a paper cheque, then you may also be required to pay an additional returned cheque fee, which can incur an additional expense of $30 or more.
However, some of the smaller online banks and credit unions may not charge NSF fees to their customers. This is often one of the perks of signing up with a smaller no-fee bank account.
No-fee bank accounts typically don’t charge the same overdraft fees, NSF fees, or monthly account maintenance fees that larger, more established banks charge.
Not all banks charge an NSF fee for denied/returned debits. However, the banks that do so charge the fees as a means of preventing customers from overdrawing their accounts in the future.
Whenever customers overdraw their accounts and payments are returned, it can cause overall confusion and complications within the bank. Additionally, if a bank becomes known for bounced cheques and customers who frequently overdraw their accounts, the bank’s overall reputation can be harmed.
Before the rise of digital banking, this could cause significant problems for bank tellers by creating extra work and accounting processes.
Since the banks had to pay employees extra money to account for bounced cheques and returned funds, banks began imposing NSF fees on customers who tried to overdraw their account balance.
NSF fees aren’t as common as they used to be, as many banks are dropping NSF fees to attract new customers. Today, overdraft fees are far more common than NSF fees.
An overdraft fee is where the bank approves the overdraft, offering to “loan” the money to the customer to cover the bank draft. However, in return for the favour, the bank will often impose an overdraft fee as a form of interest.
Conversely, an RTN NSF fee occurs when the bank denies the account debit and returns the amount to your account to prevent your account from incurring a negative balance.
If your account is overdrafted by a small amount, most banks will approve the transaction and charge you the overdraft fee. RTN NSF fees are typically imposed on larger overdraft amounts that the bank doesn’t feel comfortable approving.
Here’s a quick table breaking down the difference between the two common banking fees:
|RTN NSF Fee
|Average Fee Amount
|$45 – $60
|$35 – $50
|Account debit is denied
|Account debit is approved
In my experience, overdraft fees are generally favourable to RTN NSF fees, as the account debit is approved.
This can prevent missed payments and late fees from creditors, as they’ll still receive the payment on time. Paying an overdraft fee is a fair price to pay compared to late fees and missed payments on my credit report.
When an RTN NSF fee is imposed, on the other hand, not only do I have to pay a similar fee but the intended recipient of the debit never gets the funds.
If you’ve never received an NSF or overdraft fee before, then you’re likely wondering how it could affect your credit score. The good news is that an NSF fee will not directly impact your credit. The NSF notice or overdraft won’t be sent to the credit bureaus or marked on your credit report.
However, NSF fees can indirectly affect your credit by causing you to miss payments to companies that will mark you down for a late payment.
For example, if your car payment is set to auto-draft from your account and you don’t have sufficient funds, you could receive an RTN NSF fee from your bank. Additionally, the bank will not cover the cost of the debt, which means that the lender will never receive your payment.
While most lenders have a several-day grace period, some may immediately mark you down for a missed payment. This, in turn, could negatively affect your payment history, which is one of the key metrics used to determine your credit score.
Legal Implications of NSF
Beyond the immediate financial penalty of an NSF fee, there lies a murky territory of legal implications. Continually bouncing cheques or failing to make due payments might paint you in a less-than-flattering light, both reputationally and legally.
Bounced Cheque and Legal Consequences
In many jurisdictions, frequently issuing bounced cheques is more than just a banking blunder; it’s a legal offence. Especially if the payee can demonstrate that the issuer intended to defraud.
In such cases, the consequences can extend beyond mere NSF fees to potential legal actions. It’s not uncommon for aggrieved parties to demand not only the original amount owed but also any consequential damages caused by the non-payment.
Small Claims Court and NSF
Navigating small claims court often seems like a hassle many would like to avoid. However, if you’re on the receiving end of multiple NSF incidents, this avenue becomes increasingly appealing. Here, claimants can seek redress for the primary amount and any consequential damages.
Repeated offences can tarnish your financial credibility and even lead to higher interest rates or reduced credit limits.
Here are a few quick tips to help you avoid overdraft and NSF fees in the future.
Most modern banks offer some form of overdraft protection that you can subscribe to. Some banks offer this service for free, while others may charge you a small monthly fee for the service.
Overdraft protection is relatively affordable and typically only costs an extra $10 to $15 per month, which is far less than the amount you’ll be charged for an overdraft or NSF fee.
The most common reason for overdrafts and NSF notices is that you’re not keeping track of when your automatic account debits are scheduled for.
I recommend creating a detailed list of scheduled withdrawals and marking them down on your calendar so you can plan to make a deposit into the account accordingly.
Many banks allow customers to prohibit overdraft charges in the first place. This is one of the best ways to avoid NSF fees. If your account can never be overdrawn, then you’ll never have to pay any fees.
An increasing number of small banks are doing away with NSF fees altogether. If you’re getting tired of your current bank’s NSF fees, then it may be in your best interest to switch banks.
Another reason why your bank may not have enough funds to cover the requested transfers and debits is that you’re not planning accordingly, and your finances are out of order. If you want to regain control of your personal finances and savings, be sure to check out my list of the best budgeting apps in Canada.
Lastly, most banks allow account holders to set up low-balance notices. Whenever your available account balance falls below a specified amount, you’ll be notified via text message or email.
This will help you reign in your spending so that you have the necessary funds to cover upcoming account debits.
What is the process to reverse an NSF fee?
If you have been charged an NSF fee and believe it was in error, or if it’s your first time and you’re seeking leniency, you can follow these steps:
- Contact Customer Service: The first step is to call the bank’s customer service number. Explain the situation clearly and politely ask if they can reverse the charge.
- Visit a Local Branch: If the phone call doesn’t resolve the issue, you can visit your local branch. Speaking face-to-face with a bank representative can sometimes be more effective.
- Document Everything: If you believe the fee was an error, gather any evidence you have that supports your claim. This might include bank statements, transaction records, or other relevant documents.
Some banks may waive an RTN NSF fee if it’s your first time receiving one. If not, though, then you’ll be left to pay the fee and accept the consequences.
The important takeaway is that you practice better account management so that it doesn’t happen in the future.
Looking for more great money-saving tips? Keep on reading to see my guide to saving money on a tight budget!