If you have a savings or money market account, you may have noticed that thereâs a rule that goes with it â no more than six transfers or withdrawals per month from the account. It may feel oddly specific, but itâs true for all savings accounts at all banks and credit unions. Congratulations, youâve experienced Regulation D.
Regulation D refers to the Federal Reserveâs reserve requirements for depository institutions â or, more plainly, how much money a bank needs to hold in reserve as a percentage of the total amount of money it owes to its customers. So, for instance, currently banks must keep a minimum reserve of 3% of the total amount over $16.3 million and 10% of the total amount over $124.2 million.
Why is this important? âItâs designed to make sure that banks have an appropriate amount of money in reserve,â says Robert FĂ¶ehl, J.D., executive-in-residence for business law and ethics at Ohio Universityâs College of Business. âItâs about making sure that banks are safe and sound.â
As part of these reserve requirements, banks must classify what types of deposit accounts they have and keep reserves accordingly. For accounts categorized as savings accounts, Regulation D limits bank customers to six transfers or withdrawals per month. This rule is in place, in part, because banks arenât required to hold a reserve against savings accounts.
In general, transaction accounts, which include checking accounts, are considered riskier types of deposits. âYou write a check; that check could bounce,â FĂ¶ehl says. âThereâs more risk to the financial institution to have transaction accounts than to have savings accounts.â
Savings accounts are considered safer for banks because â by definition â people arenât using them for all of their financial business. If youâre writing all your checks on your savings account, itâs not really a savings account. âYou canât call something a savings account if itâs a transaction account,â FĂ¶ehl says. âThis is where the limit comes into play.â
Regulation Dâs limits are also a way of encouraging people to save, says Mayra RodrĂguez Valladares, a financial regulation consultant and trainer in New York City. âThe downside is that if you wanted to withdraw more than six transactions a month you could incur some kind of penalty,â she says.
If you go over your allowed six transfers or withdrawals, your bank may charge you a fee. If you do it regularly, they may convert your account to a checking account or even close your account entirely.
In general, any account that limits âconvenientâ transfers and withdrawals is considered a savings deposit account and would be covered by Regulation D. These include:
These accounts also come with a âreservation of rightâ requirement, in which the bank reserves the right, at any time, to require seven daysâ written notice of an intended withdrawal â but banks donât typically do this in practice.
Essentially, Regulation D caps transactions that are considered easy for you to initiate without having to drive to a bank or visit an ATM. That would include:
You may bypass the six-withdrawal limit under certain conditions, including if youâre willing to travel to your local branch in person. âItâs getting to be less and less of a problem,â Valladares says. Transactions that donât go against your limit include:
If youâre feeling hemmed in by the six-transaction limit of your savings accounts, there are a few ways to work around it: