One-Year Anniversary of Reg D Change - Impact to Savings Accounts

Last Saturday was the one-year anniversary of a little-known change in a Federal Reserve regulation that impacts savers. On April 24, 2020, the Fed announced a change to Regulation D that permits banks and credit unions to allow their customers to make more than six payments or withdrawals per month from their savings and money market accounts.

One thing that wasn’t apparent when the Fed first announced this change was if this change would be permanent or just temporary. A couple months after the announcement, the Fed updated its FAQs by adding one to address this question. According to the FAQ, the “Board does not have plans to re-impose transfer limits.” Although there may be changes, the Reg D change is considered permanent.

It’s important to note that banks and credit unions are not required to make changes. They are free to maintain their old withdrawal limit rules. Some bank policies include fees when customers exceed six payments or withdrawals per month. Some banks also have policies that give them the right to close savings accounts if customers regularly exceed this limit.

As you might expect, many banks and credit unions have been slow in updating their policies. After one year since this announcement, I thought it would be interesting to review the latest policies of a few popular banks and credit unions to see what has changed.

Suspended Withdrawal Limits

When the pandemic hit last year, several institutions announced temporary policy changes to assist customers. In some cases, that included waiving the 6-per-month withdrawal limit. Those waivers still exist at several banks. Here are the current policies at three popular online banks.

Ally Bank

Ally Bank started to waive the excessive transaction fee before the Fed changed Reg D when the pandemic first hit. However, it didn’t make any significant change after the Reg D change. In its savings account page, Ally still says that they are “temporarily refunding this fee.”

Federal law permits limiting certain types of withdrawals and transfers from savings accounts. There's a $10 excessive transaction fee for each transaction that exceeds this limit. However, we're temporarily refunding this fee to help those of you impacted by COVID-19.

Ally is not attributing the fee to Reg D as banks have long done. It only says that “Federal law permits limiting.”

Discover Bank

In Discover’s FAQ “How do I withdraw money from my Online Savings Account”, Discover Bank includes a long description of its withdrawal limits. At the end of the paragraph, Discover states that they “are currently not enforcing” this limit.

We are currently not enforcing the monthly transaction limit on savings and money market accounts. Therefore, exceeding these limitations on more than an occasional basis will not result in the closure of your account.

In my opinion, this suggests only a temporary change.

Marcus by Goldman Sachs

Marcus by Goldman Sachs also addresses this limit in its FAQs. In the FAQ “How many withdrawals can I make each month,” Marcus provides the following answer:

Due to a change in federal law, you are now free to make more than six withdrawals or transfers from your Online Savings Account in a monthly statement period. At this time, there is no limit to the number of withdrawals or transfers you can make.

This sounds more permanent than either Ally or Discover, but Marcus did include “At this time” to suggest it may not be permanent.

New Limit at American Express

Unlike the other online banks, American Express National Bank has made a policy change that appears to be permanent. Instead of allowing an unlimited number of withdrawals, it just increased the number from six to nine. This is described in detail in one of their FAQs:

Why is there a limit of nine (9) withdrawals/debits per statement cycle for High Yield Savings Accounts?

American Express High Yield Savings Accounts are not meant for everyday spending. Savings accounts like our High Yield Savings Account were historically required to limit the number of withdrawals and transfers that could be made to six (6) withdrawals and transfers per statement cycle. This requirement came from a Federal Reserve Board regulation - Reserve Requirements for Depository Institutions (12 C.F.R. 204 Regulation D).

The Federal Reserve Board revised this regulation in April, 2020 to permit banks to remove the six withdrawal / transfer limit. As a result, to give our High Yield Savings Account customers additional flexibility to access their funds, Savings customers may now make a maximum of nine (9) transfers or withdrawals per statement cycle.* There is no limit on the number of deposits can be made.

I find it interesting that American Express noted that its savings account is “not meant for everyday spending.” I think American Express is not alone in that they don’t want their savings account to be used like a checking account even though the Reg D change essentially allows this.

No Limit Without Fanfare at Navy Federal

For the case of Navy Federal Credit Union, I could not find any mention of Regulation D or savings account policy changes. However, there is no mention of withdrawal limits. In fact, Navy Federal’s account disclosure includes the following:

Savings Transfers and Withdrawals

You may transfer and/or withdraw funds from your savings account as often as you want.

I’m not sure exactly when or how the disclosure changed. I assume the disclosure used to include the Reg D withdrawal limits. Navy Federal isn’t promoting unlimited withdrawals from savings accounts, but it appears that they are quietly allowing it with no end date.

Still Has Not Changed

As you might expect, there are many banks and credit unions that haven’t made any changes to their withdrawal policies. In fact, many still say that the 6-per-month limit is due to federal regulation.

This reminds me of the last change to Reg D in 2009 when the Fed increased the number of allowed checks per month in savings and money market accounts from three to six. After the Reg D change, many banks and credit unions maintained the 3-per-month check limit for several years and claimed it was due to federal regulation. It will be interesting to see how many years it will take this time.

Capital One

Capital One’s 360 Performance Savings account page still lists the 6-per-month withdrawal limit and cites “federal laws” as the reason. This is done in both the savings account Q&A and in the account disclosure. The following is from the 360 Performance Savings Disclosure:

Pursuant to federal law, no more than six (6) withdrawals or transfers per monthly statement cycle to a third party or to your other accounts at Capital One are permitted on this account.

Chase Bank

At Chase Bank, the Savings Withdrawal Limit fee still exists with the same 6-per-month limit. Chase is actually more strict than the old Reg D in that all withdrawals are counted (The old Reg D exempted certain withdrawals like ATM withdrawals.) Below is an excerpt from the Chase savings account page:

Savings Withdrawal Limit Fee: $5 Savings Withdrawal Limit Fee, which is a Chase fee, applies to each withdrawal or transfer out of this account over six per monthly statement period. All withdrawals and transfers out of this account count toward this fee, including those made at a branch or at an ATM.

PenFed

There are many credit unions that have also not made updates to their policies. PenFed, the fourth largest credit union in the nation, is one of them. In addition to still listing the 6-per-month limit, it blames federal regulations for the limit. This is an excerpt from PenFed’s membership disclosure:

federal Regulation D limits the following to no more than a total of 6 per monthly dividend cycle

Alliant Credit Union

Another large and popular credit union, Alliant, is still listing the 6-per-month limit. It’s also still blaming the Fed. This is an excerpt from Alliant’s savings account FAQs:

Are there any transaction restrictions for savings accounts?

Federal regulations limit pre-authorized withdrawals to six per month per savings account.

Bottom Line

Since the Reg D change doesn’t require banks and credit unions to change their 6-per-month withdrawal limits, the institutions don’t have much motivation to make changes. Banks don’t seem to want their customers to use savings accounts as checking accounts. As American Express mentioned, its savings accounts “are not meant for everyday spending.” There is probably more cost for the bank to maintain accounts with more withdrawal transactions. That may be one of the reasons why banks typically offer higher interest rates on savings accounts. As the pandemic and temporary COVID measures end, it’ll be interesting to see how banks will change their 6-per-month limits. Do they return to the old limit? Do they allow unlimited withdrawals or do they follow American Express and just slightly increase the limit?

Unlimited or higher limits on withdrawals will offer savers a small benefit.

First, it will make it easier for savers to keep more money in their savings accounts instead of their checking accounts. Most savings accounts have higher interest rates than checking accounts. In 2019, I described how Ally customers could use Ally’s free overdraft transfer service to maximize their interest. Without the excessive transaction limit, it’s even easier to keep more in your Ally savings account.

Even if savers aren’t trying to minimize the amount of cash in their checking accounts, this Reg D change should lower the odds of being hit with the excessive transaction fee. There are many reasons why you may exceed six withdrawals in a month from a savings account. For example, if you’re using your savings account to fund a new account at another bank, there may be multiple withdrawals made with one or two done in relationship with the trial deposit that’s done to verify that you own the existing account. Not having to worry about excessive withdrawals on savings accounts doesn’t come close to make up for the record low interest rates. Nevertheless, it’s a small benefit, and in today’s world, savers need all the help they can get.

If you know the withdrawal limit policies of other banks or credit unions, please leave a comment.

All references to institution websites and disclosures were made on 4/26/2021.