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What is Regulation D?

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ATM KeysBefore the popularity of online banks with their high yield savings accounts, you never transferred money directly out of a savings account. You usually transferred it to your checking account and then write checks, withdrew cash, or used a debit card. Regulation D didn’t matter to you, the limit of 6 ACH transfers didn’t matter to you, and you were never penalized for it.

Now, with everyone trying to optimize their savings to maximize their accrued interest, it’s happening more and more often and it’s pissing people off because banks are charging them fees and, when it happens too often, closing these accounts.

So what is Regulation D and why is there this limit of 6 transfers?

Regulation D

When you’re talking finances, there are two Regulation Ds. The first one is by the SEC and it involves the regulation of securities (like stocks). Specifically, Regulation D from the SEC outlines what qualifications an issuance must meet in order to be exempt from the registration requirements. The second one, and the one we’ll discuss in this article, is regulation of bank deposits and is issued by the Federal Reserve Board.

Chances are you started researching Regulation D because you received a letter from the bank warning you about the number of transfers you made. This letter may have accompanied a fine or even the closure of your account. While you may be upset at the bank, it’s not their fault.

Regulation D actually refers to §204.2(d)(2), which defines a savings account. By definition, it’s one where you are not allowed to make more than six transfers in or out in a statement cycle or calendar month. The reason why this rule exists is because the reserve requirements, or how much of your balance the bank needs to keep on hand, is lower on savings accounts compared to checking accounts. Since it is lower, your savings account shouldn’t be used like a checking account. Since the reserve requirement is lower, the bank is able to give you a higher interest rate because your money is out “working,” rather than sitting in the “vault.”

Why was this not an issue before? The regulation makes an exception for transfers to another account you own or when the transfer or withdrawal is made in person or via ATM.

How to Avoid 6 Transaction Limit

It’s quite simple – get a checking account at the bank you currently have a savings account. If it’s at an online bank, the checking accounts usually offer great interest rates (great relative to the nothing you get at a brick and mortar bank) and you can transfer funds between it and your savings account as often as you’d like.

So, if you get a letter or email from your bank warning you about the 6 transaction limit, don’t get upset. They’re just doing their job.

(Photo: redspotted)

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8 Responses to “What is Regulation D?”

  1. John says:

    As a teller with one of the big banks, I have run across this issue fairly regularly. I’m glad to see it laid out here! :)

    One thing I want to point out (and I’m not sure who’s inaccuracy it is) is that online transfers between “your own accounts” are what triggered Reg D ing most of my customers’ situations (i.e. multiple transfers from your savings to checking, same bank), which the article here says is exempt…

  2. Aaron B says:

    The rules stipulated by Regulation D seem to be a bit convoluted. For example, according to this site (http://www.bankersonline.com/tools/regdlimits_chart.html) transfers INTO the account are not covered, so it would seem they are not part of the limit of 6. So I believe (if I have this right) that your statement “you are not allowed to make more than six transfers in or out in a statement cycle or calendar month” is misleading.

  3. govenar says:

    Under Related Posts, “Limit of 6 ACH Transfers on Savings Accounts” (i.e., the last time Jim wrote about this) seems to have more accurate info. Also see the Wikipedia page.

    In my case, the online checking account I use has a rate very close to a savings account, so I don’t worry about number of withdrawals.

  4. Felicia says:

    I don’t think this 6 transaction per month is fair…it’s your own money and for your bank or {ie} the government to penalize you for moving your money about is just wrong. Most of us are not doing anything illegal and we DO understand what “Savings Account” means and banks are not paying a high interests on these accounts anyway. When fee’s are charged who gets them? And don’t banks worry about alienating their customers with all this??

  5. Sebastian says:

    Transfers from your savings to checking DO count — maybe. The law is quite clear: remote banking (on your computer, over the phone) would count.

    If you went to an ATM (which seems like remote banking to me) or into the bank and transferred from savings to checking, it would NOT count against the limit.

    In any case, it is a stupid regulation. Banks need to keep 10% of the savings in reserve. Having a limit on the number of transfers is not as effective as telling customers, “You are allowed to withdraw 90% of your balance each month.”

    But hey, what do you expect from The Fed? Their goal is to keep money where they think it belongs, and that is at the top.

  6. jefrey says:

    Yes it is your money..but when you deposit “your” money into a bank, you are in effect granting that bank the right to your money, and they use “your” money to profit which allows them to maintain the bank and the employees and make loans to other people…who pay for the privilege…with interest..and a small portion of that profit is given to you for the use of Your money…it is called capitalism…you know profiting off of another… I would have figured a 10 year old would understand the way a bank works…So if you are moving your money around.. then the bank cannot realistically use it to make a profit to pay you interest.because they do not know how much money they have on hand, and banks have to keep a specific amount so they can operate….So you are in effect screwing up the system..you anti capitalist communist socialist ( add what ever “ist” you desire) you un American mooch….

    Savings accounts are not “TOYS” for you to play with. Thats why they have checking accounts…Banks are a serious business they do not have time to mess with your trifling nonsense…

    And I am certain had you been listening when you opened the savings account, you would have heard about the rule..it has been around a while…it was amended in 2009…

    So quit your bitching and keep an extra $1000 in your checking for emergencies…


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