Why Is Your Savings Account Limited to Six ACH Transfers Per Month
If you frequently move money in your accounts, you may have faced a transaction limit penalty at some point. When this happened to me, I was upset about my bank, but in reality the Federal Reserve limits your savings account to six transactions per month. But why?
The six-transaction limit, known as “Regulation D”, does not apply to all transactions. It is more or less designed for pre-or automatic withdrawals from a money market savings account. You can read the full list of the Fed’s rules here (there’s also a handy chart here that breaks them down ). But personal finance expert Jim Wang explains why this is the case:
Your savings account is classified as a “savings deposit” and the reserve requirement for a “savings deposit” is 0%, compared to about 10% in a “transaction account”. The reserve requirement is how much of the balance sheet the bank should keep in reserve and not lend out. So when Emigrant Direct receives your $ 1000 in his savings account, he doesn’t need to keep any of that in his reserves, he can lend out the entire $ 1000 because the reserve requirement in the savings account is 0%. (hence the attractive rates). However, in a checking account (transaction account), they must keep 10% of the balance available, as it is expected that you will use your funds more often.
Basically, Rule D prevents you from turning your savings into a temporary checking account. The bank must have a certain amount on hand, and when you start taking away too much of your savings, it is confusing, making it difficult for the Federal Reserve to determine how much of your bank’s reserves and take appropriate action .
If you weren’t aware of Provision D, this is something to watch out for, especially if you do a lot of online banking. In the worst case scenario, your account can be blocked if you have too many automatic withdrawals. To find out more about this, visit Wang’s link below.
Why is there a limit of 6 ACH transfers per month with savings accounts? | Bargain