Overdraft fees are charged to your chequing account when you withdraw more money than you have available. When an overdraft payment goes through, you'll have a negative balance and the account will remain in overdraft status until the balance is settled.
Most banks offer overdraft protection, which means they’ll cover the cost of the transaction up to a predetermined amount. This can help you avoid a declined payment, but you’ll still have to repay the funds to bring your account out of the negative.
Below, you'll find a summary of overdraft policies, the overdraft charges and interest charged by various banks, and (most importantly) how to avoid unnecessary fees.
Key Takeaways
- Overdraft fees are charged when you subscribe to overdraft protection.
- Overdraft interest is the interest on the overdrawn amount.
- You can avoid overdraft fees by avoiding spending more than you have by planning ahead.
What is an overdraft?
An overdraft occurs when you don't have enough money in your bank account to cover a withdrawal, but your bank allows the transaction to go through. This results in a negative balance.
For example, if your phone company withdraws $50 to pay your bill but you only have $25 in your chequing account, the resulting balance is -$25 – which puts your account in overdraft.
This transaction could result in a non-sufficient funds (NSF) fee from your bank.
However, most banks offer an overdraft protection service that may protect you from facing expensive fees like NSF and missed/late payment charges.
What are overdraft fees and interest?
An overdraft fee is a penalty that your bank charges if there isn’t enough money in your account to cover a transaction.
If you don’t have overdraft protection, you might be charged an NSF fee of up to $50. If you do have overdraft protection, the maximum fee is $5.
How much do overdraft fees cost?
There are a few different ways to pay for overdraft protection and fees. Your options depend on what your bank offers and how often you expect your account to go into overdraft.
- Non-sufficient funds (NSF) fee: If your account goes into overdraft, you’ll be charged a fee of up to $50 for every transaction that isn’t covered.
- Courtesy fee: Some banks will cover your first overdraft for a small fee. You may have to pay a full NSF fee for any subsequent overdrafts.
- Pay-per-use charge (unlimited): Every time your account goes into overdraft, you're charged a one-time fee, which is usually around $5.
- Pay-per-use charge (once per month): Every month your account is in overdraft for at least a day, you'll be charged a fee. Again, this is usually around $5. You won't be charged if your account is in good standing.
- Monthly charge: You'll be charged every month to have overdraft protection, even if your account is in good standing. However, if you do go into overdraft, you may not be charged an additional fee.
You may not have to pay an overdraft fee if:
- Your bank offers overdraft protection for no charge
- Your overdraft doesn’t go over a certain threshold, like $5
- You add enough money to cover the overdraft by the end of the business day
How to calculate overdraft interest
If your account's in overdraft, you'll be charged interest on the negative balance. Overdraft interest is usually around 21% to 22%.
If you're currently in overdraft, here’s a handy calculator that can estimate the amount you owe in interest:
Interest Values
The Canadian government’s plan to crack down on overdraft fees
The Canadian government proposed to cap overdraft fees at $10 as part of their recent budget negotiations. The idea is that limiting these and other "junk fees" will help provide relief for people who are already struggling to make ends meet.
However, the proposal is still under review by the Canadian Bankers Association.
Similar legislation has recently been introduced in the U.S..
Overdraft protection and fees by bank in Canada
| Bank | Overdraft pay-per-use fee | Overdraft protection monthly fee | Overdraft interest (annual) | Amount covered |
|---|---|---|---|---|
| RBC | $5 if you exceed your overdraft protection limit | $5 (waived with certain chequing accounts) | 22% | * $500 to $5,000 – subject to credit approval |
| TD | $5 | $5 | 21% | * $300 to $5,000 – subject to credit approval |
| BMO | $5 | $5 | 21% | * $250 to $2,500 – subject to credit approval |
| CIBC | $5 | $5 | 21% | * $100 to $5,000 – subject to credit approval |
| Scotiabank | $5 | $5 | 21% | * $250 to $5,000 – subject to credit approval |
| National Bank | $5 | N/A | 21% | * Subject to credit approval |
| Laurentian Bank | $5 | N/A | 22% | * $250 to $1,500 – subject to credit approval |
| Coast Capital Savings | $5 | $5 | Prime + 18% | * $500 to $3,500 – subject to credit approval |
| Alterna Bank | $2.50 | N/A | 19.99% | * $500 to $5,000 – subject to credit approval |
| Tangerine | $5 | N/A | 19% | * Subject to credit approval |
| EQ Bank | N/A | N/A | N/A | * N/A |
| Simplii Financial | N/A | $4.97 | 19% | * Up to $5,000 – subject to credit approval |
RBC overdraft protection and fee
Overdraft options and costs: RBC clients can opt-in for overdraft protection with limits ranging from $500 to $5,000. This costs $5 per month and you'll incur 22% interest on the amount overdrawn. If you exceed the $5,000 limit, there's an extra $5 charge for the handling fee.
Are fee waivers available? Customers with either RBC VIP Banking or RBC Signature No Limit Banking Account accounts qualify for a fee waiver, and with VIP accounts, your coverage extends to $10,000. Quebec residents get another small benefit of not being charged the handling fee for going over the limit.
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.TD overdraft protection and fee
Overdraft options and costs: Choose between a monthly plan where you're charged $5 per month, no matter how often your account goes into overdraft, or a pay-as-you-go option, which will cost you $5 per use (not available in Quebec).
Both of these options are subject to a 21% APR. You also have to pay back the overdrawn balance within 89 days.
Are fee waivers available? Four accounts offer the opportunity to wave overdraft protection fees:
- TD Student Chequing Account
- TD Minimum Chequing Account (with a student, senior, or RDSP fee rebate)
- TD U.S. Daily Interest Chequing Account
- TD Borderless Plan
BMO overdraft protection and fee
Overdraft options and costs:
- Standard Overdraft Protection: Pay $5 per month for coverage from $250 to $2,500
- Occasional Overdraft Protection: This pay-per-use plan charges $5 per overdraft transaction with the same coverage, $250 to $2,500 (unavailable in Quebec).
- Overdraft Transfer Service: Automatically move funds from another BMO account to cover insufficient funds and pay a $5 transaction fee each time.
- Interest: Both the Standard and Occasional protection plans are subject to a 21% interest rate.
Are fee waivers available? The BMO Premium Chequing Account waives the fee for Standard Overdraft Protection.
CIBC overdraft protection and fee
Overdraft options and costs: Pay a fixed $5 monthly fee to have overdrafts covered automatically, or choose a pay-per-use fee to be charged $5 for any transaction that creates or increases an overage on your account, to a maximum of $5 per day.
Both options are subject to 21% interest, but the pay-per-use option is not available in Quebec.
Are fee waivers available? If you have the CIBC Smart Plus Account, you'll get the monthly fee waived (but will still need to pay interest).
Scotiabank overdraft protection and fee
Overdraft options and costs: Choose the $5 Monthly Overdraft Protection Plan to automatically cover unexpected expenses, or opt for the Pay-Per-Use Overdraft Protection Plan (unavailable in Quebec) and pay a $5 charge each time you're short on funds.
Both options are subject to 21% interest.
Are fee waivers available? If you have the Scotiabank Ultimate Package, you won't need to pay an overdraft protection fee, but you will still be charged interest on the amount that you go into overdraft.
National Bank overdraft protection and fee
Overdraft options and costs: Instead of giving you a new loan when your account is in overdraft, your funds are transferred from one of your other National Bank accounts, such as a line of credit, or a Mastercard account. A $5 transaction fee is charged each time (maximum of once per day), and your balance will be subject to the interest rate related to the line of credit or credit card.
Are fee waivers available? The National Bank Total Chequing Account is the only National Bank account that waives overdraft protection costs.
Laurentian overdraft protection and fee
Overdraft options and costs: A $5 monthly charge (plus 22% interest) will protect you from overdraft penalties. You'll be covered for between $250 and $1,500.
Are fee waivers available? Laurentian Bank doesn't currently offer overdraft waivers on any of its accounts.
Coast Capital overdraft protection and fees
Overdraft options and costs: Opt for monthly overdraft protection for $5 per month plus interest to protect your account from going into overdraft, or choose per-usage overdraft protection and pay $5 (plus interest) each time your account goes into overdraft.
On top of the set fees, overdraft charges incur interest of prime + 18% per year.
Are fee waivers available? Coast Capital doesn't currently offer overdraft waivers on any of its accounts.
To read more about Coast Capital’s overdraft protection system, see: Coast Capital Overdraft Protection
Alterna Bank overdraft protection and fees
Overdraft options and costs: Monthly Overdraft Protection costs $2.50 at Alterna Bank, with an interest rate of 19.99% and credit coverage between $500 and $5,000.
Are fee waivers available? Alterna Bank doesn't offer any overdraft fee waivers on its accounts.
To read more about Alterna Bank’s overdraft protection system, see: Alterna Bank Overdraft Protection
Tangerine overdraft protection and fees
Overdraft options and costs: The overdraft fee for a Tangerine account is $5 per use, with an interest rate of 19%.
Are fee waivers available? There aren't any overdraft fee waivers available from Tangerine.
EQ Bank overdraft protection and fees
Overdraft options and costs: EQ Bank doesn't offer overdraft protection. If you have a negative account balance, you'll simply have to pay back any amount owing in order to settle your account.
Are fee waivers available? Since there are no overdraft fees charged, there isn't a need for fee waivers with EQ Bank.
To read more about EQ Bank’s overdraft protection system, see: EQ Bank Card Fees & Features
Simplii overdraft protection and fees
Overdraft options and costs: You can add overdraft protection to your Simplii Financial chequing account for $4.97 per month (plus a 19% interest), which qualifies you for coverage up to $5,000.
Are fee waivers available? No, Simplii doesn't offer any waivers for its overdraft protection.
To read more about Simplii’s overdraft protection system, see: Simplii Overdraft Rate
Should I get a bank account with overdraft protection?
| Pros | Cons |
|---|---|
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Overdraft fee vs. NSF fees
Both overdraft fees and non-sufficient fund fees occur when you spend more money than what's available in your account, there are key differences between them.
| Overdraft fee | NSF fee | |
|---|---|---|
| When do they occur? | When your overdraft protection is enabled and a withdrawal is requested that goes over the amount available in your account | When your overdraft protection is NOT enabled and a withdrawal is requested that goes over the amount available in your account |
| Does the transaction go through? | Yes | No |
| What's the standard fee? | Around $5 per use, plus around 21% interest | Around $45 per use |
| Do you have to opt in? | Yes, and it's subject to credit approval | No |
Basically, overdraft protection exists to help you avoid NSF fees. You'd have to make 9 overdraft transactions at $5 each to pay the same amount as one NSF fee, so it's well worth the money.
Just make sure you pay off the balance in time to avoid those hefty interest charges.
FAQ
What is overdraft protection?
Overdraft protection is an optional financial product banks offer to help you if your account is overdrawn. Your bank lets you borrow up to a pre-approved limit via a monthly or per-use fee and associated interest charges.
What is an overdraft fee?
An overdraft fee is either a per-use or monthly payment required for using your bank's overdraft protection service. These fees vary by bank but are typically around $5, which is significantly less than an NSF fee.
What is overdraft interest?
Because the bank is essentially loaning you money to cover your overages, it charges overdraft interest on the overextended amount. Your overdrafts are best paid off ASAP since interest rates can be pretty high, often around the 21% mark.
What are overdraft fees vs. NSF fees?
An overdraft fee is what you pay for the overdraft protection provided by your bank, either on a per-use basis or as a recurring monthly fee. NSF fees are charged when you don't have overdraft protection.
Why should I get overdraft protection?
Overdraft protection is one of the best ways to avoid NSF fees. Instead of paying that $45-ish fee, your overdraft protection will kick in and you'll only have to pay around $5, plus the associated interest rate.
Will banks always cover an overdraft?
No, not all banks provide overdraft protection. EQ Bank, for instance, doesn't offer this service, so clients are required to pay back the overdrawn amount ASAP and will have to deal with associated NSF and late payment fees.
Is overdraft protection bad for your credit?
It's only bad for your credit if you abuse it. If you have a negative account balance for an extended period or don't pay your overdraft balance and fees, your bank may close and send your account to collections.
Is overdraft a loan?
Yes, overdraft protection is a type of loan, which is why a credit check is required when you subscribe to the service. It's your bank's way of lending you the funds to cover the overdrawn amount in your account.
What are alternatives to overdrafts?
Overdraft alternatives include lines of credit, credit cards, personal loans, payday loans, etc. Most of these options come with higher interest rates and therefore are more costly than the overdraft service provided by your bank.
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