Borrow Now

Overdraft

An overdraft happens when you spend more money than is available in your bank account. This can cause your account balance to drop below zero. Overdrafts often happen by accident and can lead to extra bank fees.

This page explains what an overdraft is, how overdrafts work in Canada, and what steps can help reduce overdraft fees.

What Is an Overdraft?

An overdraft occurs when a transaction is processed, but there is not enough money in your chequing account to cover it. The bank may still allow the payment to go through, which results in a negative balance.

Overdrafts can happen with:

  • Debit card purchases
  • Cheques
  • Automatic bill payments
  • Pre-authorized debits

Bank rules and fees vary by financial institution.

How Overdrafts Happen

Overdrafts often happen due to timing issues, such as:

  • A bill coming out before your paycheque is deposited
  • Multiple payments are posted on the same day
  • Forgetting about an automatic payment
  • A delayed deposit

Even small differences in timing can cause an overdraft.

What Is Overdraft Protection?

Some banks offer overdraft protection, which allows transactions to go through even when funds are low. When this happens, the bank usually charges an overdraft fee.

Overdraft protection:

  • Is optional
  • Comes with fees
  • Has limits set by the bank

Not all accounts include overdraft protection by default.

Overdraft Fees Explained

When an overdraft occurs, banks may charge:

  • An overdraft fee
  • Interest on the negative balance
  • Additional fees if the balance is not corrected quickly

Fee amounts and policies vary by bank. Reviewing your bank’s fee schedule can help you understand potential costs.

Overdraft vs. NSF Fees

Overdrafts and NSF fees are often confused, but they are different.

  • Overdraft: The bank allows the payment and charges a fee
  • NSF (non-sufficient funds): The payment is rejected and returned

Some banks charge one or the other, depending on account settings.

Why Overdrafts Can Be Costly

Overdraft fees can add up because:

  • Each transaction may trigger a fee
  • Fees can stack over several days
  • Interest may apply

This makes it important to address overdrafts as soon as possible.

How to Avoid Overdrafts

Steps that may help reduce overdrafts include:

  • Checking your balance regularly
  • Setting up low-balance alerts
  • Keeping a small buffer in your chequing account
  • Tracking automatic payments
  • Reviewing bank statements often

These habits can help prevent surprise fees.

Overdrafts and Automatic Payments

Automatic payments are convenient but can increase overdraft risk if funds are not available. After any due date change or new bill, it helps to double-check payment timing.

Keeping a list of automatic withdrawals can improve account awareness.

Overdrafts and Payday Loans

Speedy Cash offers payday loans, which are short-term loans based on income and repayment timing.

Payday loans are typically repaid on your next payday:

  • In most provinces, repayment is a lump sum
  • In Alberta, repayment is spread over installments

If an automatic loan payment is scheduled and funds are not available, overdraft or NSF fees may apply. Loan rules and fees vary by province.

Where Speedy Cash Operates:

  •  Physical and Online: Alberta, British Columbia, Nova Scotia, Saskatchewan
  •  Online loans only: Manitoba, New Brunswick, Newfoundland, Labrador, Ontario
  • Not available: Quebec, Prince Edward Island (PEI), Yukon, Northwest Territories, Nunavut

Loan rules in Canada vary by province.

What to Do If You Go Into Overdraft

If you notice your account is overdrawn:

  1. Review recent transactions
  2. Add funds as soon as possible
  3. Contact your bank with questions
  4. Watch for additional fees

Acting quickly may help limit costs.

Overdrafts and Budgeting

Tracking your spending and payment dates can help reduce overdraft risk. Even a simple written list of bills and paydays can make a difference.

Budgeting tools and alerts may also help.

Summary

An overdraft happens when your bank account balance drops below zero, and the bank allows a payment to go through. This can lead to fees and interest. Overdraft rules and costs vary by bank. Tracking balances, setting alerts, and keeping a buffer can help reduce overdraft fees.