six withdrawal Whether you’re opening a new savings account or managing one you already have, you’ve likely noticed your account has a six withdrawal limit per month, with overages resulting in fees or even cancellation of the account. It turns out the Federal Reserve Board requires each bank to set and follow this limit. What exactly does this regulation mean, and is there a way to plan around it?

What is Federal Regulation D?

The withdrawal limit is the direct result of Federal Regulation D or FRB 12 CFR 204.2 (d)(2), which is a part of the Federal Reserve Board’s code for Reserve Requirements of Depository Institutions. All banks, being depository institutions, have to comply. In plain language, the legal code tells banks to either convert, restrict or close out the account of any depositor who exceeds the excessive withdrawal limit for accounts that are designated as savings accounts.

Why is this the case? The short answer is for the sake of the money supply. Transaction intensive accounts like checking accounts have no such limitation, so their cash flows vary on a daily basis. However, banks are required to keep some amount of money on hand, which would be difficult if every account allowed unlimited withdrawals like a checking account, as the bank would need to have essentially unlimited amounts of cash available at all times. Therefore, the easiest way for banks to have smaller amounts cash on hand is to enforce this distinction between savings and checking accounts. While this six withdrawal limit per month may not be an issue for some, others may find themselves regularly close to or over the limit. By enforcing this limit, the Federal Reserve and the bank are effectively forcing you to use your the account solely as it is intended — to save money. Most banks also recommend that you pay your bills from a checking account so you can avoid potentially going over the withdrawal limit.

Are there ways to plan around Federal Regulation D?

Federal Regulation D specifically only applies to “convenient” withdrawals, which include online, phone, pre-authorized or automatic transactions. This means that almost any other means of withdrawing money are viable. As such, there are certain ways for both traditional and online bank users to avoid this limit. If you use a brick-and-mortar bank, you can avoid the penalty by completing your transaction with a teller or using an ATM. If you’re banking with an online-exclusive bank with absolutely no ATM access and you worry that you may come close to the six withdrawal limit, your best option might be to request a mailed check. While not all online banks allow this feature, a great majority do and will not penalize you for it utilizing it, as Federal Regulation D specifies that the penalty should only apply to online, phone, automatic or other convenient transactions.

Aside from alternative transaction methods, the most effective thing you can do to ensure you don’t go over the limit would be to balance your savings account. If you budget your money and balance your accounts so that you only withdraw from savings during an emergency, your spending will be limited and you won’t have to fear incurring the penalty of the regulation. Conversely, if you think you may need to withdrawal funds from the account more than six times per month, you may want to opt to open a checking account so you can do so without accruing the penalty.

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