If you have a savings or money market account at a bank or credit union, it has limitations on certain transactions set by Regulation D, which was established by the Federal Reserve Board to implement reserve requirements for depository institutions. Regulation D limits the number of electronic transactions on a savings or money market account to 6 or 3 transactions in a calendar month, depending on the type of transaction.
Transactions that are limited:
- Pre-authorized transfer to a third party
- Pre-authorized payment to a third party (ACH)
- Pre-authorized transfer to an individual’s own non-loan account
- Transfer for overdraft protection
- Transfers or payments done via telephone system
- Transfers or payments authorized via fax
- In addition no more than three transactions may be made by check, draft, debit card, or similar order and payable to a third party
Unlimited transactions allowed:
- In person request
- Transactions initiated via mail
- To make a payment on an in-house loan account
- Transactions via ATM
I have encountered these fees on a few occasions, and they can creep up on you if you don’t pay attention. This has come to be even more of a problem with the ability to manage almost any aspect of your bank accounts either online or via telephone, which are the types of transactions that are limited.
When I worked for a bank, this was one of the top customer complaints. They would come in all upset about a fee on their “free” account and wonder why, and in almost every instance it was simply because people were treating their savings account like a checking account. They would keep a relatively low checking balance, but then have to constantly move money from savings into checking throughout the month to pay bills. It seems like a perfectly fine idea, but if all of these transfers are initiated online, by phone, or through pre-authorized transfers, you’re going to get hit with the Reg D fee.
Even Worse Than the Fee
Some banks and credit unions are doing a “service” for their customers by not even allowing additional electronic transactions once you reach the Regulation D limit. You may think that the bank has your best interest at heart, but think again. If they stop electronic transfers from your savings account and you have your savings set up as overdraft protection, or you try to quickly move some funds to cover a check you just wrote, you could be in store for even more fees. When this happens, the account will act as if it has insufficient funds, which could lead to bounced checks, overdrawing your account and incurring more fees, etc.
The bottom line is that your savings account should be treated as such. Don’t cut your money so close in your checking that you will need to constantly tap into savings each month. Even if you do, consider that you can make these transactions in person at your local branch or ATM to remove the possibility of reaching that transaction limit.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
Who gets the fees that are charged when one has more than the number of permitted transfers in a month? Govt. or Bank? Is the fee charged set by the Govt. or by each bank? My bank said they cannot waive the fee. If Bank passes the fee to the Fed, then I understand their position, but if the Bank keeps the fee as income then they could elect to waive if they choose to do so in some instances.
This is bullshit. If there is a regulation, there should be NO transactions available after the 6. Then again, Regulation D is just a regulation made so banks can profit off of the mistakes of people. Think about it. Why can't there by more than 6 online or by phone, yet in person it's fine? It's to siphon money off the people.
Regulation D mentions nothing about a fee. These fees were dreamed up by the banking industry's think tank. I used to work for a bank and our managment team had the collective IQ of a hampster! Regulation D simply limits your transactions and requires the customer to be notified that no more transactions will be authorized. It's the banking industry who decided to allow the transactions to continue beyond the limit but each activity would be fee based. Give us a break, its hard enough to try and manage your money in these tough economic times without your bank sitting there with their calculators and clip boards. If you contact your bank the cleverlyl hide behind their "Regulation D requires it" when in fact Regulation D simply puts a limit on the transactions. Banks are the ones that dreamed up the fee part of it.
I use my savings account to hold my emergency fund and rarely do any withdrawals. At most I have 2 or 3 deposits into it per month. I currently have it with HSBC Direct.
I've been using HSBC Direct for over a year. Started off getting 5.05%, and now with the rate cuts I'm at 4.25%. I just did a reality check to ensure I'm still getting a good rate and for the most part I am. I posted the sites I looked at here:
Yep, that's the problem. It is a federal regulation, so most banks feel they don't need to bother mentioning it since it isn't just an individual bank policy.
"The fee was a surprise."
That's a serious problem. When I first heard about Reg D, I scoured my savings accounts documentation for any mention of Reg D or associated fees. I couldn't find anything!
I'm glad this article is out there so people can know about Reg D, because banks aren't informing their customers.
Nickel, that's how I got into trouble before. I usually make a few online transfers to various banks/accounts throughout the month, but transfers from savings are usually just limited to a couple a month. But like you, I transferred some money, and then realized I transferred the wrong amount so I just immediately did another one. Then later in the month I forgot about it and one of my automated transfers went through and put me over the limit.
The fee was a surprise, but thankfully the customer service people were very helpful and explained it to me, and waived the fee as a courtesy.
My Mom actually called me to ask me about this 2 days ago. I explained the situation so she plans on managing her money a little differently from now on. Thankfully, her bank sent her a warning letter, and didn't charge any fees right away.
Doh! Just last night I made a savings-to-checking transfer, then though better of it and decided to transfer more. So I burned up two transfers for the price of one... :(
Honestly, I never keep track of these things, but I probably should.
High yield checking accounts don't pay as much as high yield savings accounts. My workaround is to use my credit cards for automatic bill payments. I don't automate my credit card payments, since I want to actively check them for anomalies monthly anyway. Then I make a single transfer from savings to checking to cover all my credit card payments. It's a little work, but then I don't have to worry about surprise fees or penalties.
Bank fees in general are repulsive to me. I agree with Ron, it's a good time to consider the move to a high-yielding checking account if you are making more than a half-dozen transactions.
All the more reason to ditch the traditional savings account in favor of a high yield checking account.
A checking account is a "transaction account" that allows unlimited third-party transfers and does not impose early withdrawal penalties. It isn't subject to reg D.