Understanding Federal Reserve Board Regulation D

Federal Reserve Board Regulation D is a federal law that says you can't make more than six monthly withdrawals or transfers out of your savings account. The rules apply to money market accounts, too.

You might never have noticed—you probably try not to touch your savings too often. With any luck, you move money into your account more often than you move money out of it. But if you ever have a month where you do need to tap your savings more than six times, you might face a penalty. Your bank could decide to charge you a fee—or, if you regularly have more than six transactions, even close your account or turn it into a checking account. Also, your subsequent transactions might be declined. The good news: Certain transactions may be exempt, as we'll explain below.

The Federal Reserve Board’s Regulation D governs the reserve requirements of depository institutions. But what does that mean? Let’s break it down.

The Federal Reserve Board is an independent government agency. Its seven members are in charge of the U.S. Federal Reserve system, which tries to keep the U.S. economy growing and the financial system stable.

A depository institution is a place where people keep their money: a commercial bank, savings institution, or credit union. These organizations hold your money safely until you need it back. They may pay you interest while holding your money. They may also lend it out to other customers in a way that doesn’t prevent you from accessing your money when you need it.

Finally, bank reserves are currency deposits that depository institutions keep on hand and do not lend out.

Regulation D, in summary, helps make sure banks have enough cash on hand to meet customers’ withdrawal requests by limiting how customers can use their savings accounts. 

Financial institutions satisfy their reserve requirements in two ways:

1. Vault cash
2. Maintaining a balance at their district’s Federal Reserve Bank

A financial institution that fails to meet its reserve requirements may have to pay a reserve deficiency charge to its Federal Reserve Bank. This charge costs one percentage point per year above the primary credit rate.

Interestingly, banks aren’t required to keep any reserves for customers’ savings account balances. What they are required to keep reserves for are transaction accounts—in other words, your checking account.

A certain amount of transaction account deposits are exempt from reserve requirements. A level above that has a 3% reserve requirement. And a final level above that has a 10% reserve requirement. These reserve requirements don’t have to be met every single day; they just have to be met on average within a certain range and within a certain period.

To comply with Regulation D, your bank doesn’t want you to make more than six of these "convenient" types of outgoing transactions from your savings account each month:

• Overdraft transfers
• Electronic funds transfers (EFTs)
• Automated clearing house (ACH) transfers
• Transfers made by phone, fax, computer, or mobile device
• Wire transfers made by phone, fax, computer, or mobile device
• Checks written to a third party
• Debit card transactions

You can get around the six-transaction limit by making certain types of transfers and withdrawals that the Federal Reserve says don’t count—so-called inconvenient transactions. If you use an ATM or a bank teller to move your money, it’s all good. And if you call the bank and ask it to mail you a check from your savings account, that’s also fine.

That said, your bank might decide to impose stricter rules and not exempt these transactions. You’ll have to read the terms and conditions of your savings account or ask customer service to see what rules apply to your account.

If these rules strike you as illogical, you’re not alone. Unfortunately, the first time you learn about these rules might be when you accidentally run afoul of them. If you only violate the rule occasionally, your bank might not penalize you and you might never notice. But if you do face a penalty, here’s how to avoid the problem in the future. 

Here are four strategies to keep your savings account withdrawals below the maximum.

Lump your withdrawals. Ideally, you keep a budget that you adjust at the beginning of each month to account for that month’s anticipated income and expenses. At the beginning of each month, you can make your best estimate of how much you might need to withdraw from savings. You might set aside money each month to pay bills that only come up a few times a year, like homeowners insurance or car repairs.

Or perhaps you have an irregular income and set money aside in months when your income is higher, then dip into savings in months when your income is lower. Instead of making several savings withdrawals or transfers throughout the month, try to make just one or two.

Pay bills from your checking account. Don't use your savings account for this purpose.

Avoid overdrafting your checking account. Set up mobile alerts that keep you on top of your balance.

Contact your bank in advance. If you might need to make a seventh transaction from savings, ask how to avoid penalties and fees. Specifically, ask if making an ATM, in-person, or phone-to-check transfer (as described in the section above) will keep you out of trouble.

While Regulation D provides minimum standards banks must follow, banks can implement tighter criteria to determine when to charge customers for exceeding the six transaction limit. Here are the policies of three of the countries’ biggest banks.

Chase: Even though Regulation D does not limit withdrawals or transfers from a savings account made in person at a branch or at a ATM, Chase charges a $5 Savings Withdrawal Limit fee on all withdrawals or transfers out of savings accounts in excess of six per monthly statement period.

Bank of America: BOA charges $10 for each withdrawal or transfer in excess of six per monthly statement cycle. The bank also caps excess withdrawal or transfer charges to six ($60) per cycle. Customers with a minimum daily balance of at least $20,000 and Preferred Rewards Program members are exempt from these charges.

Wells Fargo: Charges a $15 excess activity fee with a limit of three ($45) per monthly fee period for transactions that exceed the limit of six imposed by Regulation D.

For customers who use savings accounts as intended—mostly to make deposits and accumulate funds—Regulation D’s limits should rarely come into play. You can avoid excess transaction fees by making most of your outgoing transfers and withdrawals from your checking account, not your savings account.

In months when you need to make significant withdrawals from your savings account, lumping your transactions together by making one or two larger transfers from savings to checking instead of six or more smaller ones will keep you in your bank’s good graces. If you exceed the limit occasionally, the worst thing that will happen is you’ll pay a few fees. If you exceed it too often, however, federal law requires the bank to convert your savings account to a checking account or close it altogether.