How Do Overdrafts Work in Canada? Protection, Fees & Limits Explained

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Alexander Porter

In Canada, overdraft fees may apply when your account lacks funds to cover a purchase or withdrawal but your bank approves the transaction. Banks typically offer overdraft protection through either a monthly flat fee or a per-use fee, capped at $5 per transaction (plus interest). If you don’t have overdraft protection, you can end up paying overdraft fees or NSF fees and they are NOT cheap.

Are you someone who knows every last movement on your bank account… or someone who adopts an “out of sight, out of mind” approach?

If you don’t keep a close eye on your bank account, you may be paying fees (and losing money) without knowing it through overdraft fees.

For example, if you make a $50 purchase with your debit card but you only have $25 in your bank account, your bank may approve the transaction and charge you with an overdraft fee.

Worse, your bank may reject the transaction and sting you with an eye-watering NSF fee instead.

Each bank has unique terms regarding overdraft fees and NSF fees so it’s not a “one size fits all” deal. Overdraft fees can be as low as a few dollars and as high as $35, so it pays to know what you’re being charged (literally).

Read on to learn about overdraft protection, the best Canadian cash advance apps to top up your balance, and how to contact your bank to chat about fees.

RECOMMENDED: Best Canadian Cash Advance Apps 👇

How does overdraft protection work?

Let’s start with the basics – Your account goes into overdraft when you don’t have enough money to cover a payment or withdrawal.

This could be a debit card purchase, like a new hockey jersey. Or, it could be the result of an automated payment like your phone bill.

The full list of transactions that may push your account into overdraft include:

  • Debit card purchases
  • Bill payments
  • Pre-authorized debits
  • Cheques
  • Cash withdrawals
  • Bank transfers

Many banks offer an overdraft protection service which can help you avoid declined transactions, late payment charges and non-sufficient funds (NSF) fees – all of which will sting. For example, Scotiabank charges an eye-watering $48 NSF fee if a check or other debit item is returned due to insufficient funds!

With basic overdraft protection, your bank lends you enough money to cover the transaction (up to an approved limit) which places your account balance in the negative.

You’ll have to pay interest on the overdrawn amount plus a fee (depending on the fee option you choose).

Here’s how overdraft protection works [Example]

Let’s say you have $100 in your account and you make a purchase that costs $50. 

This overdraws your account by $50 so now your account balance is now -$50. You’ll have to pay back the overdrawn amount of $50 with your overdraft fee and any interest. Your bank will take the repayment out of your next deposit.

You may also have the option to link a second bank account where funds will be taken from to cover your overdraft amount (more on that below).

How much does overdraft protection cost?

Your  bank or financial institution can charge fees for overdraft protection. These fees can come in different forms, including:

  • Pay-per-use fees
  • Monthly fees

You’ll typically choose your preferred option when you open your account or when you first apply for overdraft protection. You can also switch between overdraft protection costs when you want to.

Pay-per-use fees

Your financial institution will charge a set fee for each overdraft. The maximum fee amount in Canada is $5. 

Some banks will charge this $5 fee once per day, meaning you can go into overdraft more than once in a 24-hour period. Other banks will charge the $5 fee each time you make another overdraft transaction.

If you pay pay-per-use fees, you won’t pay a flat monthly fee.

Monthly fees

Your financial institution will charge a set fee each month no matter how many times you overdraft your account. Monthly fees are usually around $5.

You’ll typically have to pay this fee whether you overdraw your account or not, so it’s worth figuring out how often you’ll use this service before committing to a monthly fee. Some banks may waive this fee for months when you don’t overdraw your account. 

🇨🇦 Overdraft Apps Tip: In addition to your per use or monthly fee, interest is also payable on overdrawn balances. This is calculated daily and usually lands around 21% – 22% (per annum), charged monthly.

What if you don’t have overdraft protection?

If you don’t have overdraft protection and don’t have the funds to cover a transaction, your bank may allow the transaction to go through anyway and charge you a small fee for the overdraft. 

However, “small” is relative.

This fee can be called an overdraft courtesy fee, ad-hoc fee or casual overdraft fee. 

Whatever the name, Canadian banks make big business charging customers for the convenience of an overdraft which places low-income customers at risk of financial pressure.

How much are overdraft fees in Canada?

A recent (April, 2024) proposal in Canada’s Federal Budget proposes reining in the fees that banks can charge for overdrawn transactions.

The suggested cap of $10 for fees on non-sufficient funds would be significantly less than the $35 to $50 that big Canadian banks currently charge when a customer’s account doesn’t have the funds to cover a check or pre-authorized debit payment.

For example, Bank of Montreal (BOM) charges a $15 Overdraft Fee when your account is overdrawn more than $50 with a maximum of three Overdraft Fees per business day.

Exact overdraft fees vary across the big 5 banks (RBC, TD, BMO, CIBC, Scotiabank) based on the specific account you have and your bank’s current offers.

It’s a good idea to check your bank’s website (your overdraft fees may be hidden in extremely fine print on a Terms and Conditions PDF) or just call them directly to find out the exact fees associated with your account.

BankCustomer Service Number
Bank of Montreal (BMO)1 877 225-5266 (English and French)
Canadian Imperial Bank of Commerce (CIBC)1-800-465-2422
Royal Bank of Canada (RBC)1-800-769-2511
Toronto-Dominion Bank (TD)1-866-222-3456 (English)1-800-895-4463 (French)

You can also contact your bank’s customer service line to dispute an overdraft fee. If you don’t have a lot of overdrafts, your bank may be willing to wipe one fee clean as a gesture of good will.

This is typically easiest if you’ve been with your bank for a while and can prove a track record of positive account usage. If you’re open to it, don’t be afraid to voice that you’ll consider switching banks. It’s more hassle for a bank to lose you than to waive one overdraft fee and if you never ask, you’ll never get! 

I got an NSF fee, what does that mean?

Non-sufficient funds (NSF) is a term used to indicate your account doesn’t have enough funds to cover a check or debit transaction.

When you attempt to cover a check or debit transaction, like an electronic bill payment,, your bank can cover the transaction and charge you an overdraft fee (or a smaller overdraft protection fee).

Or, the bank can reject the payment and charge you an NSF fee. This fee is payable even if the bank doesn’t honor the charge, which can be a huge frustration (especially if you’re trying to pay rent or a bill that’s now overdue).

Here’s a breakdown of the current NSF fees charged by Canadian banks.

BankNSF Fee
Bank of Montreal$48
TD Bank$48
RBC Royal Bank$45
National Bank$45
Tangerine (Direct bank)$25
PC Financial$45
Alexander Porter

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