Overdraft protection is a banking feature that allows your account to go below zero — spending more than you have — without having a transaction declined or triggering a non-sufficient funds (NSF) fee. It sounds helpful, but the costs can add up quickly if not managed carefully. This guide explains how overdraft protection works in Canada, what it costs, and how to avoid needing it.
When you make a payment and your account doesn't have enough funds, two things can happen:
The cheapest form. When your chequing account goes negative, funds are automatically transferred from a linked savings account. Some banks charge a small transfer fee ($5–$10), but you avoid NSF fees and high interest. If you have a linked savings account, this is the best overdraft protection option.
A pre-approved credit line attached to your chequing account. When you overdraw, you borrow from this line at a set interest rate (typically 19–22% annually). No monthly fee — you only pay interest when in overdraft. Better than flat-fee overdraft for occasional, short-term overdrafts.
Most Big 5 banks offer a flat monthly fee for overdraft protection — typically $4–$8 per month — plus interest on the overdrawn amount (19–21% annually). This is the most common form but can be expensive for regular users.
Most online-only banks and prepaid accounts in Canada do not offer overdraft protection. This includes Tangerine, Simplii, EQ Bank, KOHO, and Wealthsimple Cash. While this means you can't accidentally go negative at these institutions, it also means a declined transaction if you run short — rather than an overdraft fee.
For Canadians who occasionally run close to zero, maintaining a small buffer (even $50–$100) in their account prevents declined transactions without needing overdraft protection.
KOHO is a prepaid account — it can never go negative. If you don't have the funds, the transaction is declined. While this may seem like a limitation, it's actually a feature for budget-conscious Canadians: you physically cannot overspend your balance. Combined with KOHO's spending tracking and category alerts, it helps you maintain awareness of your balance before you hit zero.
KOHO also offers a small interest-free cash advance feature (KOHO Cover) for eligible members, which can bridge small gaps without traditional overdraft fees.
KOHO's prepaid model means you can never accidentally overdraft. Combine KOHO's spending controls with free banking and cash back. Use code 45ET55JSYA for a signup bonus.
Open KOHO Free — Use Code 45ET55JSYAOverdraft protection is a useful safety net, but it costs money and can mask poor spending habits. The best strategy is to avoid needing it: maintain a balance buffer, use spending alerts, and consider a prepaid account like KOHO for variable spending where overspending isn't possible. If you do need overdraft protection at a traditional bank, opt for a linked savings account transfer over the flat monthly fee plan whenever possible.