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Limit of 6 ACH Transfers on Savings Accounts

There is a limit of six transfers, ACH or otherwise, per statement cycle on savings accounts as mandated by the Federal Reserve board Regulation D, which defines the rules of each account type and its reserve requirement. Why is this important? With the advent of online savings accounts and the chase for a better interest rate, ACH transfers into and out of savings accounts are becoming more frequent. Before online savings accounts like ING Direct [3] and Emigrant Direct [4], when you actually had to visit a bank to initiate an ACH transfer; a limit of six transfers on a savings account wasn’t really a problem. In fact, you’d be hard pressed to initiate six in a year, let alone six within a statement month. Now, you can initiate six ACH transfers within a statement cycle without really realizing it and that can be cause to terminate your account!

The reason for this is because your savings account is classified as a “saving deposit” and the reserve requirement on a “saving deposit” is 0%, compared to something like 10% on a “transaction account.” A reserve requirement is how much of the balance the bank must keep in reserve and not give out in loans. So when Emigrant Direct gets your $1,000 in your saving account, it doesn’t need to hold any of that in its reserves, it can loan all thousand dollars because the reserve requirement on a savings account is 0%. (hence the attractive rates) On a checking account (a transaction account) however, they must retain 10% of the balance on hand because the assumption is you will be drawing on your funds more frequently.

So, why did I look this all up? Because when I was reading the Emigrant Direct’s disclosure statement (link [5]), I stumbled upon this rule:

Federal regulations require that no more than six (6) transfers per statement cycle may be made to (1) an account at another bank or financial institution, including your External Account, (2) to another EmigrantDirect account or (3) to a third party by means of a preauthorized or automatic electronic transfer. We reserve the right to close your Account for violation of the above restriction.

This is nearly an exact copy of Section 204.2(d)(2) of Regulation D of the Federal Reserve Board’s definition of a “savings deposit:”

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. (reference [6])

So, be aware of the six transfer limit on online savings accounts [7] or you might be in for a surprise!