Savings Deposits Frequently Asked Questions
- My bank or credit union told me that I violated a Federal Reserve regulation when I made too many online transfers out of my savings account or share account. What are they talking about?
The regulation is the Board's Regulation D (Reserve Requirements of Depository Institutions, 12 CFR part 204). Regulation D implements the requirements of section 19 of the Federal Reserve Act, which requires depository institutions (including banks and credit unions) to classify the deposit accounts they hold as "transaction accounts," "savings deposits," or "time deposits." By law the Board sets reserve requirements for depository institutions on their "transaction accounts" and time deposits but not on their "savings deposits." That means that depository institutions have to have a way to tell whether an account is a "transaction account" or a "savings deposit," and Regulation D tells depository institutions how to do that.
- How does Regulation D have banks distinguish between a transaction account and a savings deposit?
Regulation D distinguishes between a "transaction account" and a "savings deposit" based on how Regulation D defines those two terms. The distinction is based on how frequently certain kinds of transfers and withdrawals are allowed to be made out of the account. If an unlimited number of checks or automatic/electronic or debit card transfers can be made from the account every month, the account is considered a "transaction account." If the account allows only a limited number of these kinds of transfers and withdrawals (not more than six per month), the account may be considered a "savings deposit."
- Why does the Federal Reserve care how easily I can have access to my own money?
The Federal Reserve's concern is about banks meeting their reserve requirements. The Federal Reserve Act requires the Board to impose reserve requirements on accounts that are "transaction accounts." The Federal Reserve Act defines a "transaction account" as an account that lets the account holder make transfers and withdrawals by certain convenient methods, such as check, electronic transfers, and debit card transfers, to make payments to other people. Very often account holders can make those kinds of convenient transfers and withdrawals from accounts that are "savings deposits," too. In order to distinguish between "transaction account" and a "savings deposit," the Board through its Regulation D has drawn the distinction based on how frequently an account holder can make those convenient transfers and withdrawals out of the account. The more the account allows convenient transfers and withdrawals, the more that account resembles an account that meets the law's definition of "transaction account." How often the account allows these convenient transfers and withdrawals is what distinguishes between a "transaction account" and other kinds of accounts, such as "savings deposits."
- What is a transaction account?
A transaction account is an account that allows the account holder to make more than six transfers out of the account each month by check, electronic or automatic transfer, or debit card debits. A checking account or a share draft account at a credit union are the two most common kinds of "transaction accounts."
- What is a savings deposit?
A "savings deposit" is an account with two features. The first feature is a number limit—six or fewer—"convenient" transfers or withdrawals that may be made from the account each month. The second feature is that the bank reserves the right to impose a waiting period of at least seven days on withdrawals from the account. As a practical matter, banks do not exercise the right they reserve to impose waiting periods on withdrawals, so the most important feature of a "savings deposit" is the limit on the number of monthly convenient transfers from the account.
- What is the monthly limit on convenient transfers and withdrawals that can be made from a savings deposit?
The monthly limit on convenient transfers and withdrawals from savings deposits is not more than six per month. This limit applies to preauthorized, automatic, and electronic transfers, and to transfers made by check or debit card.
- Do all kinds of transfers and withdrawals out of a savings deposit have to be limited to not more than six per month?
No. Types of transfers and withdrawals from "savings deposits" that are made in person at the bank, by mail, or by using an ATM are not subject to the six‑per‑month limit. Also, a transfer or withdrawal request initiated by telephone does not count toward the transfer limit when the withdrawal is disbursed via check mailed to the depositor.
- Why is the limit for "convenient" transfers and withdrawals from savings deposits set at six per month, instead of some other number?
The limit of six "convenient" transfers per month has been in place since 1982, when Congress passed a law that created an account called a "money market deposit account" or "MMDA" that allowed six preauthorized, automatic, or telephonic transfers to another account of the depositor at the same institution or to a third party. Not more than three of these types of transfers could be made by check, debit card, or other similar order made by the depositor and payable to third parties. Those limits became the basis for the limits that were incorporated into the "savings deposit" definition in Regulation D. Since 2009, the monthly limit of six has applied to all types of convenient transfers and withdrawals (including check and debit card transfers).
- How does a depository institution comply with the monthly limit on convenient transfers from savings deposits?
Regulation D requires a depository institution to comply in one of two ways: (1) prevent transactions in excess of the limit or (2) adopt procedures to monitor excess transfers after the fact and contact customers who exceed the limits more than occasionally. If a customer continues to violate the transfer limits after notification, the depository institution must either close the savings deposit and place the funds in another type of account or take away the transfer and check‑writing capacities of the account.
- Are the limits on convenient transfers from savings deposits new? My bank told me that this is a new policy.
The six‑transfer limit has been in existence since 1982.
- Are banks required to charge their customers fees for violating the six‑transfer limit?
No. Regulation D does not require or prohibit the charging of fees by banks to customers that exceed the transfer limits. Banks in many instances charge such fees to encourage customers to comply with the numeric limitations on convenient transfers from savings deposits.
- Do banks that charge their customers fees for violating the transfer limits have to pay those fees to the Federal Reserve?
These fees are bank fees, and are not government fees or taxes. Banks that charge such fees do not send them to the Federal Reserve.
- What does it mean when a depository institution has to maintain reserves?
To carry out the nation's monetary policy, section 19 of the Federal Reserve Act requires banks and other depository institutions to maintain reserves against their transaction accounts. Regulation D requires banks to maintain reserves of up to 10 percent of the deposit amount on "transaction accounts." Other kinds of accounts that limit the customer's ability to withdraw and transfer funds, such as "savings deposits" (including "money market deposit accounts"), are not subject to reserve requirements. A depository institution has to maintain reserves in one of two ways. A depository institution can maintain reserves in the form of cash in its vault or, if vault cash is insufficient, as a balance in an account at a Federal Reserve Bank. The more transaction accounts a depository institution holds, the higher its reserve requirements will be. Reserve requirements are one of the tools that the Federal Reserve uses to implement monetary policy.