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.