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How to Write a Check: Your Step-by-Step GuideThe Fed Amends Reg D to Remove 6-Per-Month Limit on Savings Accounts
The Federal Reserve Board announced today that it has amended Regulation D (Reg D) to permit banks and credit unions to allow their customers to make more than six payments or withdrawals per month from their savings and money market accounts. This was done in part to give customers easier access to their funds during the COVID-19 pandemic. It is one of the many actions the Fed has taken in the last two months to combat the economic effects of the pandemic.
The first thing to note about this Reg D change is that it does not require institutions to suspend their excessive transaction policies. It’s up to the bank or credit union. Some bank policies include fees when customers exceed six payments or withdrawals per month. Some banks also have policies that give them the right to close savings accounts if customers regularly exceed this limit. Before you choose to exceed this limit, make sure to check with your bank or credit union. If they haven’t suspended enforcement of this limit, be sure to let them know that they can no longer blame federal regulations on their policy.
Another thing to note is that this rule change may just be temporary. I am still trying to get clarification. The Fed’s press release and FAQs are not clear on this question. At first I thought that “interim final rule” in the press release title implied a temporary change, but after researching the definition of this, that does not seem to be the case. One would think that the Fed’s FAQs would specifically address this question, but it does not. Also, the press release and the FAQs state in several instances that institutions may “suspend enforcement of the six transfer limit.” The definition of “suspend” implies a temporary condition. However, if this rule change is temporary, one would think that the Fed would include an end date. If this rule change is temporary, it seems likely that it should last through 2020 at the very least. I’ll update this post once I receive clarification.
Update 7/27/20: The Fed has updated its FAQs with an answer to the question about if this rule change is temporary or permanent. The answer suggests it's permanent, but there is a possibility of changes based on feedback and future conditions. Below is an excerpt to the Fed's answer:
The Committee’s choice of a monetary policy framework is not a short-term choice. The Board does not have plans to re-impose transfer limits but may make adjustments to the definition of savings accounts in response to comments received on the Board’s interim final rule and, in the future, if conditions warrant.
Below is a copy of the press release from the Federal Reserve Board so you can interpret it for yourself.
Federal Reserve Board announces interim final rule to delete the six-per-month limit on convenient transfers from the "savings deposit" definition in Regulation D
The Federal Reserve Board on Friday announced an interim final rule to amend Regulation D (Reserve Requirements of Depository Institutions) to delete the six-per-month limit on convenient transfers from the "savings deposit" definition. The interim final rule allows depository institutions immediately to suspend enforcement of the six transfer limit and to allow their customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits at a time when financial events associated with the coronavirus pandemic have made such access more urgent.
The regulatory limit in Regulation D was the basis for distinguishing between reservable "transaction accounts" and non-reservable "savings deposits." The Board's recent action reducing all reserve requirement ratios to zero has rendered this regulatory distinction unnecessary.
Concurrently, the Federal Reserve is making temporary revisions to the FR 2900 series, FR Y-9, and FR 2886b reports to reflect the amendments to Regulation D.
The Fed’s FAQs page is available here.
In addition to making it easier for depositors to access their funds during the COVID-19 pandemic, the Fed provided another reason for this change. In March the Fed eliminated reserve requirements on all transaction accounts. This was another way for the Fed to support more lending by banks and credit unions. The elimination of the reserve requirement made the transaction limit distinction between checking accounts and savings accounts unnecessary.
For details on the old transaction limits of Regulation D, please refer to this DA article on Regulation D and how it affects depositors. The last change in transaction limits of Regulation D was after the 2008 Financial Crisis. In May 2009, the Fed announced changes to Regulation D to permit institutions to allow customers to write up to six checks per month from money market accounts instead of just three. Previous to this change, withdrawals or payments by check were treated differently than electronic withdrawals or payments.
Ways This Reg D Change Will Impact Savers
Depositors must first wait on their banks and credit unions to remove the six-per-month limit on their savings and money market accounts before depositors can benefit from this Reg D change.
Once the bank or credit union makes the changes, it may allow savers to earn more interest. Currently, depositors have to maintain adequate checking account balances to cover all of their regular payments. To avoid overdrafts, many depositors keep a sizable balance in their checking accounts. Free overdraft transfer policies (like those from Ally Bank) has made it easier to maintain a smaller checking account balance, but depositors still had to avoid excessive overdrafts since they count toward the excessive transaction limit. If banks and credit unions now eliminate the excessive transaction limit, savers can use their money market or savings accounts to make regular payments without worrying about the number of transactions. Also, if the institution offers free overdraft transfers, depositors can maintain only a small amount in their checking accounts. This will allow the vast majority of their funds to reside in the savings or money market accounts which typically earn much higher interest rates than the checking account.
A possible negative impact from this Reg D change is that it could put more downward pressure on savings account rates, especially at online banks that offer both low-interest checking accounts and high-interest savings accounts. This assumes that many depositors will react to this policy change and reduce their balances they maintain in their low-interest checking accounts and increase their balances in their high-interest savings accounts.
Waiting on the Banks and Credit Unions
The higher interest cost to banks may be a reason that banks won’t be in a rush to change their excessive transaction policies. It will be interesting to see how fast banks and credit unions react. Ally Bank already has suspended their excessive transaction fees due to the COVID-19 pandemic. However, as I described in my review of Ally’s COVID-19 relief package, Ally was still discouraging customers from making unlimited withdrawals from their savings and money market accounts. I’ve asked Ally if they plan to make changes based on today’s Reg D change. I’ll be sure to provide an update once I hear from them. If your bank or credit union announces a policy change, please let us know in the comments.
I find it outrageous that even checking accounts are not getting good rates, the bank is making plenty of money on loans off of them, you should get a fair share, not nothing or little.
But I do think the Fed should bar banks or credit unions from imposing fees for more withdrawals. The confusion such bank rules would create would be a horror. (BTW, the rule applies only to withdrawals, not to deposits. I prefer to say "withdrawals" to be clear, rather than"transactions from.")
This is the sole reason why nominal rates, and the real rate of interest, have declined since 1981. Bank held savings destroy money velocity period.
So I think it's possible that the the absence of Regulation D might result in lower rates on savings accounts than they otherwise might have had. And I know how popular lower rates are on this site. About as popular as a bucket full of covid-19 in the living room.
I also do several transactions per month(probably more than most) many automatic to keep certain high yield accounts fee free. I have to be able to move cash around quickly to take advantage of time limited bank bonuses, CD's, investment opportunities, paying off 0% bt offers at then end of the term etc. on top of all those automatic transactions. I keep almost nothing in a checking account earning 0% it's just a local place for direct deposit, ATM withdrawals, check cashing etc.
If banks and credit unions stop charging fees for withdrawals over 6/mo. It would simplify my finances greatly
I was wondering if the FED was going to make such a move since in person banking has been somewhat restricted.
My local BoA checking had closed their drive-thru prior to the covid-19 outbreak. I bet they regret that decision now. Not sure what I'm supposed to to when I get a large check to deposit from a maturing CD or 0% balance transfer. It seems you have to now make an appointment in Michigan to do any banking. Luckily I can do 99% of my banking online with so many accounts.
Maybe the FED needs to boost the limit for mobile banking app deposits as well. If they don't want you to go into the bank this seems like a logical solution. The limits were always too low anyway IMO.
But seriously, I use one FI to pay bills and numerous others for investment, and have never really had a problem with Reg D (or following FDIC/NCUA limits), but of course one needs to be aware of these limits as well as each FI's own limits and plan accordingly.
According to Marcus Bank it simply wouldn't allow more than 6 monthly transactions per Savings account, requiring the opening of multiple Savings accounts if more transactions are needed, particularly as they still don't offer checking accounts. Marcus may be in a good position to change this limitation, their online banking is newer and under constant development. Unfortunately Marcus Bank servers are still not as stable as Ally Bank in my experience and they really should consolidate all accounts on one monthly statement rather than separate PDF statements for each account (hopefully their 1099-INT for 2020 will include a Total 1099-INT line unlike in 2019). Marcus should also join every other online bank with a secure message center and not just rely on the hassles of call centers and their unreliable chat. With their recent rate drops Marcus Bank is becoming less interesting but I do like that interest is earned the same business day if transfers are scheduled before 6 PM and no wire fees.
I think it's safe to say though, that the potential damage that will be done to the economy by suspending this law is trivial compared to the massive debt the government is incurring piled on top of the massive debt they've already piled up.
The apparent implication of all this out of control government spending is that the prospect of inflation looms large. But we cannot afford increases in rates because the monumental debt service on the national debt is already teetering on the brink of catastrophy.
I think those who count on the welfare of their bank deposits should be less concerned with the number of withdrawals they can make from their accounts and more focused on contacting their governors, senators and congressmen to demand that they get businesses open and employee's back to work as soon as possible. If that doesn't happen, and soon, there won't be any banks.
If this is a temporary change, say for just a couple of months, I don't think it will have much of an effect.
But if this is a permanent change, it essentially means they are eliminating the distinction between checking accounts and savings accounts, and the two will probably be combined into one kind of account. I don't think that would be good news for most depositors because it would almost certainly mean that you will earn a lower return on your liquid funds. The only people who would benefit would be people who keep a low balance in their liquid funds and make money withdrawals.
Think of it this way. Banks have been in favor of eliminating Reg D for a long time. Why do you think that is? Could it be because it would lead to paying lower rates on their liquid deposits and put an end the rate competition on savings accounts? Nahhhhhhhhhh
It's really difficult to predict what these things will lead to in the banking industry because the industry is so highly regulated that conventional analysis of supply and demand and other normal market forces is thwarted by conflicting regulations. I suspect the fact that the banking industry favors elimination of Reg D means they have modeled it out and concluded that it benefits them and not necessarily their customers. So I think there is reason for depositors to be skeptical of this change.
Thank you for your email. We will be taking off the restriction but we do not have an eta on when this will be done. If you meet your max of 6 per month please send us a message and we will reset the number of transfers.
Great News! HSBC has announced their decision to remove the rule that limits consumers to six transactions each month from their savings accounts.
You now have more convenient access to your funds and to have the flexibility to freely transfer funds between your accounts for everyday expenses and/or to manage your personal finances.
There has not been an end date set for the limit to be reinstated.
“ Dear Member,
Due to the current COVID-19 pandemic, the Federal Reserve made the decision to temporarily suspend the monthly six-transfer limit imposed on savings, club, and money market share accounts. Signal Financial FCU implemented this temporary change effective April 30, 2020. Should the Federal Reserve decide to end the temporary measure, we will advise you of the change in advance. ”
There is a one-to-one relationship between time and demand deposits. An increase in TDs depletes DDs by an equivalent amount. And the source of bank deposits (loans=deposits, not the other way around), can be largely accounted for by the expansion of Reserve bank credit.
That there is a close connection between aggregate bank credit and the aggregate volume of bank deposits can be verified by comparing the net changes in commercial bank credit to the net changes in total deposits for any given time period.
In other words, the commercial banks cannot expand their earning assets by attracting something (derivative deposits) that they collectively already own. Since time deposits originate within the banking system, there cannot be an “inflow” of time deposits and the growth of time deposits cannot, per se, increase the size of the banking system. But because of the economies of scale, the largest banks can outbid / redistribute the smaller banks’ deposits.
Monetary policy should delimit all reserves to balances in their District Reserve bank (IBDDs, like the ECB), and have uniform reserve ratios, for all deposits, in all banks, irrespective of size (something Nobel Laureate Dr. Milton Friedman advocated, December 16, 1959).
The upcoming boom/bust will dwarf the GFC.
Princeton Professor Dr. Lester V. Chandler, Ph.D., Economics Yale, theoretical explanation was:
1961 - “that monetary policy has as an objective a certain level of spending for gDp, and that a growth in time (savings) deposits involves a decrease in the demand for money balances, and that this shift will be reflected in an offsetting increase in the velocity of demand deposits, DDs.”
Chandler’s conjecture was correct from 1961 up until 1981.
Thus, the saturation of DD Vt (end game) according to Corwin D. Edwards, professor of economics. [Edwards attended Oxford University in England on a Rhodes scholarship and earned a doctorate in economics at Cornell University. He spent a year teaching at Cambridge University in England in 1932. He taught at New York University in 1954, the Chicago School from 1955-1963, the University of Virginia, and the University of Oregon from 1963-1971.]
Edwards: "It seems to be quite obvious that over time the “demand for money” cannot continue to shift to the left as people buildup their savings deposits; if it did, the time would come when there would be no demand for money at all”
That is, as stagnant (or frozen) time deposits became unhinged (the deregulation of Reg. Q ceilings), the velocity in the residual deposits were to be an offset in AD. The increased “demand for money” would thus be compensated in the turnover of the ungated transactions’ deposits.
--Michel de Nostradame