Do you really know your bank's overdraft protection policy?

If you make a purchase at the store with your debit card and you overdraw your checking account, will you get hit with a fee?

What if you overdraft because of an ATM withdrawal?

Are you sure?

According to a new study by the Pew Charitable Trusts, more than half the people who overdrew their account did not know they had signed up for overdraft coverage that would result in a fee. Most said they'd prefer to have that transaction declined rather than pay the $35 fee.

"It points out this confusion," says Susan Weinstock, director of Pew's Safe Checking in the Electronic Age Project. "If that many people want the transaction to be declined, but yet they're opted-in to overdraft, then obviously they shouldn't have opted-in."

How could this be? It's been nearly two years now since new rules took effect that require banks to ask you if you want overdraft protection on your checking account - for in-store purchases made with a debit card or withdrawals from an ATM - if there's a fee involved for this service.

You have to specifically opt-in to get this protection and risk the fee. And yet, most bank customers still don't understand how the system works.

Let's recap:

DO NOTHING: You will not have overdraft coverage. If you try to use your debit card at the point of purchase or ATM card to withdraw money and there's not enough money in the account, the transaction will be declined and you will not pay a fee.

OPT-IN: Sign up for your bank's overdraft protection and a transaction that causes an overdraw will be approved and you'll be charged a fee.

The American Bankers Association says most customers don't pay overdraft fees. And the Pew survey confirms that. Still no one likes a surprise fee - especially one that can be $35 or more.

I'd strongly suggest you check with your bank and see how your account is set up. You can change your choice at any time.

Ask them specifically: "What happens if I'm about to withdraw. Will there be a fee?"

And see about cheaper options. You should be able to link your checking account to a savings account or a line of credit. Using that in an overdraft situation is normally significantly cheaper.

More Info:

Customers Still Confused about Overdraft Protection