Banking 101: What is Regulation D and How Does It Affect Me?

If you’ve ever parked your money in a savings account, you may have learned the hard way that you can’t just withdraw money any time you want. Financial institutions, such as banks and credit unions, generally limit the number of times per month that you can easily pull money from your account. If you exceed your monthly withdrawal limit, your bank might charge you a fee — or it could even deny your transaction altogether.

When explaining their transaction limits, commercial banks often will cite a Federal Reserve (the Fed) rule called Regulation D (Reg D). Note, this is different from the investment banking industry’s Regulation D of the Securities and Exchange Commission, which pertains to the sale of stocks and bonds.

What does Regulation D mean?

This rule — which has been around since the days of passbooks and handwritten account records — limits the number of transfers and withdrawals you can make in certain types of accounts to six times per statement cycle. But Regulation D doesn’t limit the amount of money you can take out of your savings, said DepositAccounts founder Ken Tumin. It’s the number of transactions you make counts. “It doesn’t matter if it’s a 1-penny debit or a $1,000 debit,” Tumin said.

If you regularly make more than six withdrawals per month, then in the Fed’s eyes, your account should be a transactional account, such as a checking account, rather than a savings account. “It puts it in a separate category,” Tumin added. Accounts that limit withdrawals to six per month are traditional savings accounts, club accounts, money market accounts and certificates of deposit.

“Savings accounts are most appropriate for consumers who want their money to grow,” said Alison Touhey, a vice president and senior regulatory adviser at American Bankers Association.
“They are not taking a lot of money out.”

A transactional account, on the other hand, serves a different purpose in the Fed’s eyes. If you plan to withdraw money regularly — to pay rent or your monthly credit card bill, for example — then the Fed would prefer that you use a checking account.

Why Regulation D exists

Transaction limits can be helpful to savers as they discourage people from draining their accounts. But that’s not why the rule was created.

The Federal Reserve drafted Regulation D in the early 20th century to help set monetary policy. Among other requirements, the rule states how much money banks should have in reserve and requires them to report it regularly.

“It’s a tool that the Fed has to affect the economy,” said Touhey. As a monetary policy instrument, “It’s not in use anymore or as much as it used to be,” she noted. But consumer financial institutions still need to abide by it. And though today, Reg D may not be the active policy measure it once was, the net result is the same: Restricting people’s withdrawals helps to ensure that they’ll have a certain amount of money in reserve.

To enforce Reg D, banks and credit unions often use fees and other penalties to discourage people from using their savings like a higher-interest checking account.

Regulation D transactions

Regulation D doesn’t affect every deposit account withdrawal, though, so don’t be discouraged if you need more access to your funds. Some types of transactions, such as online money transfers, are capped by the regulation. But others, such as automated teller machine (ATM) withdrawals, are not affected.

Transactions that are limited

Generally, Regulation D caps transactions that are considered to be “convenient,” or easy for you to initiate without having to drive to a bank or visit an ATM, such as:

• Automated transfers that have been authorized ahead of time, such as overdraft coverage for a credit card or checking account or automated bill payments
• Online money transfers to your checking account or other accounts
• Transfers or withdrawals you request over the phone or with a fax machine
• Checks that are linked to your savings account
• Debit card transactions

Before 2009, some transactions, such as writing checks, were limited to just three withdrawals per month. But the Fed changed the rule so that account holders could write checks from their savings accounts at least six times in a single statement period. “Not all banks changed their policy right away,” said Tumin, so you may still see some financial institutions limit you to three checks per month. Financial institutions aren’t required to loosen their restrictions just because the Fed has. However, most banks now allow six checks per month, says Tumin.

Transactions that aren’t limited

You may bypass the six-withdrawal limit under certain conditions, including if you’re willing to travel to your local branch in person. Regulation D specifically excludes withdrawals that the Fed considers to be less “convenient,” such as:

• ATM withdrawals
• Withdrawals you make in person at a local branch
• A withdrawal request you make through the mail
• A withdrawal request you make by phone, if the funds are mailed to you rather than disbursed directly into your account

I’ve made 6 transactions. Now what?

Ken Tumin affirmed that the penalties you face for going over your six-transaction limit depend on your financial institution. Every bank and credit union has its own rules for dealing with excess transactions.

“Sometimes there will just be, like a $5 or $10 fee. Sometimes there is no fee,” said Tumin. If you exceed your limit just once or twice, the bank may overlook it. But if you consistently do it, the bank might convert your savings account into a checking account (which likely would have lower interest and potentially higher fees). “They could conceivably even close your account,” said Tumin. “I haven’t seen too many threats of that, but that is a possibility.”

Contact your bank or credit union to find out exactly what will happen if you exceed your limit. Typically, you should expect to pay between $2 to $15 in penalties. But if you keep withdrawing money, you may continue to incur charges. Some banks limit how many withdrawal fees you can be charged, but others do not.

You also may be denied the transaction altogether. Once you have exceeded your limit, some financial institutions will just reject any withdrawal requests you make (outside of visiting an ATM or a local branch).

Or, if you’re lucky, you may just get a warning — and essentially be put on probation — if your bank typically does not charge excess withdrawal fees.

Depending on how much money you have saved, you not may even have to worry about Regulation D. Some financial institutions will waive excess withdrawal fees if you hold a lot of money in your account. For example, Chase will waive the savings withdrawal limit fee if you have more than $15,000 in your account. Bank of America will waive it if you have at least $20,000.

Regardless of your institution’s policy, be aware of the different kinds of transactions that can be counted toward the six-withdrawal limit. According to Tumin, people are sometimes caught off guard by incidental transactions that are counted by the regulation. For example, if you link your credit card or checking account to your savings in order to guard against overdraft fees, you may accidentally trigger too many overdrafts and be charged for those excess transactions.

How to avoid Regulation D fees

The easiest way to bypass this Reg D rule is to visit your bank or credit union in person or find a nearby ATM.

You can also avoid withdrawal fees by being more careful about the accounts you use for everyday bills and other transactions. Tumin attested that savers could sometimes get into trouble when they try to maximize their interest earnings by keeping too much money in a higher-interest savings account and too little money in a checking account. “Usually savings have higher rates,” said Tumin. So it’s tempting to try to keep all or most of your funds in that type of account. But if you have a lot of small everyday expenses, then you’re better off using a checking account for those.

Another thing to consider is opening more than one savings account, even though you could get flagged if you open too many accounts, suggested Tumin. But opening one or two more could give you a lot more flexibility. For example, if you opened just one more savings account, “that would allow you 12 withdrawals from the two savings accounts per month rather than just six,” he said.

Consider your options

Before you park your money, think carefully about what kind of transactions you plan to make and how often you think you’ll use those funds. If you don’t live near a bank branch or ATM, then it could be especially inconvenient to abide by Regulation D limits.

You may also want to look into which banks have more flexible withdrawal policies, and which banks charge the highest fees.

In addition, it might help to evaluate whether using multiple accounts for different purposes would maximize your savings without risking excess fees. You may decide, for example, that a checking account is a safer bet for linking to your credit card, but a savings account is still a good choice for linking to your checking.

When comparing accounts, know what kind of account suits your needs, advised Touhey, and work with your bank to find the right fit.