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September 4, 1996

Ms. Dina Twining
Regulatory Compliance Supervisor
Electronic Data Systems
5400 Legacy Drive
Plano, TX 75024

Dear Ms. Twining:

This is in response to your letter of March 26, 1996, regarding limitations on the number of transfers and withdrawals from savings accounts. In particular, you are inquiring whether payments to third parties (or to another account of the depositor) from savings accounts, when made in person at an ATM, are unlimited, or limited to three or six per month. You are also inquiring whether such payments, when initiated through a telephone or computer under a home banking arrangement, are limited to three or six per month.

Section 19 of the Federal Reserve Act imposes a higher reserve requirement on transaction accounts than on savings accounts because of the greater ability of depositors to transfer funds from transaction accounts than from savings accounts. (At present, the reserve requirement on most transaction balances is 10 percent, and on savings is zero percent.) The statutory requirement for different reserve treatment of transaction balances and savings creates a need to distinguish between the two types of accounts based on the ease with which a depositor may transfers funds in the account to third parties.

The Board's Regulation D regarding reserve requirements of depository institutions (12 CFR Part 204) implements this distinction. Section 204.2(d)(2) of Regulation D defines "savings deposit" to include an account from which:

the depositor is permitted or authorized to make no more than six transfers and withdrawals, or a combination of such transfers and withdrawals, per calendar month or statement cycle . . . to another account (including a transaction account) of the depositor at the same institution or to a third party by means of a preauthorized or automatic transfer, or telephonic (including data transmission) agreement, order, or instruction, and no more than three of the six such transfers may be made by check, draft, debit card, or similar order made by the depositor and payable to third parties.

12 CFR 204.2(d)(2).

Preauthorized transfer is defined to include:

any arrangement by the depository institution to pay a third party from the account of a depositor upon written or oral instruction (including an order received through an automatic clearing house (ACH)) or any arrangement by a depository institution to pay a third party at a predetermined time or on a fixed schedule.


The definition also specifically excludes from the three and six per month limitations arrangements that permit "transfers of funds from [the savings] account to another account of the same depositor at the same institution or permits withdrawals (payments directly to the depositor) from [the savings] account when such transfers or withdrawals are made by mail, messenger, automated teller machine, or in person." Id. These provisions distinguish between withdrawals, where funds are paid to the customer, and transfers, where funds are paid to a third party. Withdrawals are generally subject to less stringent limitations than third party transfers, even though a withdrawal can be followed by a payment transaction. For example, an in-person withdrawal can be made at a branch and a cashier's check payable to the order of a third party can be acquired with the funds withdrawn, without causing the withdrawal to be included in the limited number of transactions. Similarly, such payment transactions following withdrawals are not limited to cashier's checks; rather they can include wire transfers or other forms of electronic payment. The payment transaction subsequent to the withdrawal is a traditional banking service provided to the depositor. In contrast with this two-step process involving two instructions, a transfer is a one-step process involving a single instruction. This distinction is reflected in the parenthetical in the regulatory language following the term "withdrawals" and characterizing withdrawals as "(payments directly to the customer)." Staff believes that in such two-step payment transactions, there is no requirement that the depositor actually receive cash in hand in order to qualify the first step of the transaction as a withdrawal.

This analysis also applies to withdrawals or transfers made at an ATM. As Board staff noted in 1980 in discussing withdrawals and transfers effected at ATMs operated by other banks,1 "[s]uch transactions are similar to effecting a transaction by appearing in person at an institution." Staff opinion of October 7, 1980, Federal Reserve Regulatory Service 2-345.1 One-step transfers to accounts of third parties (as opposed to withdrawals) at ATMs with that capability must be limited for the account to qualify as a savings account.2 However, an ATM withdrawal together with a subsequent payment of the withdrawn funds to another person or account, like the similar transaction at a branch, would qualify as a withdrawal and the subsequent payment transaction would not taint the characterization of the first transaction as an ATM withdrawal.

ATM withdrawals are not limited, but telephonic (including data transmission) agreements, orders, or instructions, are limited. The principal reason for distinguishing between computer and telephone transfers on the one hand, and transfers to another account of the depositor and withdrawals made through an ATM on the other hand, is convenience. It is more convenient to make computer or telephone transfers than to go to an ATM and make the withdrawals in person. The more convenient it is to make unlimited transfers, the more the account becomes a transaction account as opposed to savings.

The overall limitation on restricted transfers and withdrawals is six per month. In addition, checks, drafts, debit card transactions and "similar orders to third parties" are limited to three per month. Board staff noted in 1992 that "[p]oint-of-sale transactions with either ATM or credit card company debit cards and withdrawals payable to third parties initiated by checks or drafts" are subject to the three-transaction limit while "telephone, fax, and computer transactions to transfer funds to another account at the same institution" and "withdrawals initiated by telephone where the proceeds are payable to third parties" are subject to the six-transaction limit. Staff Opinion of July 13, 1992, Federal Reserve Research Service 2-342.22. Thus ACH transactions on a savings account that are initiated by the depositor (such as point-of-sale debits) are subject to the three transfer limit while ACH transactions that are initiated by the depository institution, even if the institution makes the transfer pursuant to a telephonic (including data transmission) instruction, are subject to the six-transfer limit.

I hope this information is useful. Further questions may be referred to Rick Heyke of my staff (202/452-3688) or to me.

Very truly yours,

(signed) Oliver Ireland

Oliver Ireland

Associate General Counsel


1. The transfers in question were between accounts at the bank where the depositor owned the savings account, and the ATMs in question belonged to banks that were subsidiaries of the same holding company. Return to text

2. See Staff opinion of July 29, 1986 (as revised in July 1993), FRRS 2-345.17 (payments directly to a third party or third party's account are limited even if made at an ATM). Return to text

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