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January 21, 1997

Chip Trimmier, Esq.
Trimmier Law Firm, P.C.
P.O. Box 18885
West Palm Beach, FL 33416

Dear Mr. Trimmier:

This is in response to your letter of November 5, 1996 to the Federal Reserve Bank of Atlanta asking six questions regarding limitations on the number of transfers and withdrawals from savings accounts.

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 transfer 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).

The definition 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.

Question 1 asks if ACH transactions are subject to the three transaction limit or the six transaction limit. ACH transactions may be used for a variety of purposes. The nature of the specific transfer determines its treatment under Regulation D. Generally, ACH transactions count against the six transaction limit, and may count against the three transaction limit as well. Preauthorized transfers are 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.
Id. ACH payments out of an account are thus preauthorized transfers and, at a minimum, count against the six transaction limit.

In addition, Board staff has opined that point of sale transactions, which are often settled by means of ACH debit transactions, are subject to the three transaction limit. "Point-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. See Staff Opinion of July 13, 1992, Federal Reserve Regulatory Service (FRRS) 2-342.22, question 4.

With a view to clarifying this issue among others, the Board has recently proposed for public comment an amended definition of "savings deposit." The proposal distinguishes more clearly between transfers from savings accounts subject to both the six per month and the three per month limitations and those subject only to the three per month limitation. It specifies that the six per month limitation applies to preauthorized transfers, telephone and data transmission orders, checks, drafts, debit cards and similar orders to the depository institution whether given directly to the depository institution by the depositor or delivered to the depository institution through and payable to third parties. In contrast, the three per month limitation applies to transfers made by check, draft, debit card, or similar order to the depository institution delivered through and payable to third parties. See proposed 204.2(d)(1)(iii) and (iv), 61 Federal Register 69054, 69055.

Question 2 asks whether savings deposits which have a quarterly statement cycle are limited to six transactions per quarter. The definition of savings deposit requires a limitation on certain transfers and withdrawals, with "no more than six [such] transfers and withdrawals, or a combination of such transfers and withdrawals, per calendar month or statement cycle (or similar period) of at least four weeks . . . ." 12 CFR 204.2(d)(2). Thus, a depository institution may use either a calendar month or a similar period of at least four weeks as the relevant period. While nothing prevents a depository institution from using a quarterly period if that is its statement cycle period, such a choice is more restrictive than required by the Regulation.1

Question 3 asks if checks issued by the depository institution pursuant to telephonic instruction of the depositor's and payable to the depositor and a third party as joint payees are limited. The answer is that such transfers are limited. If the check is mailed to a third party, then it counts against the six per month limitation like any telephonic (including data transmission) instruction or order. Since the instruction is given directly to the depository institution by the depositor rather than delivered to the depository institution through and payable to the third party, and since the check is not made by the depositor, the transfer does not count against the three per month limitation.

Question 4 asks if overdraft protection transfers are subject to the six per month limit or the three per month limit, if the overdraft arises because of checks written on the transaction account. The three per month limitation applies, among other things, to checks written on the savings account. An overdraft protection transfer falls under the six per month limitation whether the overdraft occurs as a result of checks or not. The limitation refers to the number of transfers from the savings account, not the number of underlying checks or other transactions that caused the overdraft. Thus, if the depository institution processes a number of overdrawn checks that are presented on the same day in a batch rather than individually and makes only one transfer equal to the sum of the overdrafts from the savings account, then only one transfer from the savings deposit need be charged against the six transfer or withdrawal limit. See Staff Opinion of July 13, 1992, FRRS 2-342.22, question 2.

Question 5 asks if transfers initiated by on-line banking are subject to the six per month limit. The definition states that telephonic (including data transmission) orders or instructions count against the six transfer limit. Therefore, on-line tranfers are included in the limitation. However, a withdrawal via check mailed to the depositor is not included in the limitation, if the request for the check is initiated on line.

Question 6 asks about the use of a line of credit to provide overdraft protection to a transaction account in conjunction with tranfers from a savings account to repay amounts owing under the line resulting from such overdrafts. In particular, you are asking whether such tranfers are subject to the three or six transaction limits, or whether the mere existence of such an arrangement would convert the savings account into a transaction account. You further ask if the answer would change if the minimum transfer were $100 and advances against the line of credit were made only when there were insufficient funds in the savings account or the savings account had reached its transaction limit.

The definition of "transaction account" includes:

Deposits or accounts maintained in connection with an arrangement that permits the depositor to obtain credit directly or indirectly through the drawing of a negotiable or nonnegotiable check, draft, order or instruction or other similar device (including telephone or electronic order or instruction) on the issuing institution that can be used for the purpose of making payments or transfers to third persons or others, or to a deposit account of the depositor.
12 CFR 204.2(e)(5). (Emphasis added.) Thus, if the depository institution extends credit in connection with overdrafts and increases the depositor's ability to substitute savings account balances for transaction account balances, "a savings account may be considered a transaction account even though fewer than six transfers per month are made from the savings account." FRRS 2-342.22, question 2.

Whether or not an arrangement falls within 204.2(e)(5) depends on the facts and circumstances of the particular arrangement. Such facts and circumstances include:

the rates of interest charged on the outstanding balance under the line of credit; the balance ordinarily maintained in the transaction account; the frequency with which advances on the line of credit are satisfied from transfers from the savings account rather than other funds from the customer; and the extent to which the depository institution suggests, promotes, or otherwise furthers the establishment of the arrangement.
Staff opinion of July 13, 1992, FRRS 2-342.22, question 1.

We would need to know the facts and circumstances enumerated in the Staff opinion in order to answer your questions more specifically.

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. A limitation of 18 restricted transfers per quarter (9 of which may take the form of checks, debit card transactions, or other instructions to the bank through third parties) without regard to which month or similar period of four weeks the transfers occur in, is not permitted under the Regulation. Return to text

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