What You Need to Know About Regulation D

You may never have run up against Regulation D, but if you do, here’s everything you need to know about the rule that means your savings and money market accounts are treated in an entirely different way than your checking account.

While savings accounts and money market accounts are known as “non-transaction accounts” and checking accounts are considered “transaction accounts” by the Federal Reserve Board, one element that separates them is Regulation D.

It basically boils down to the simple fact that, under Regulation D, account holders are prevented from making more than six transfers (or six withdrawals) from a savings account during each statement period. For the purposes of this discussion, savings and money market accounts are treated as savings deposits.

Regulation D is aimed at assuring that banks meet capital reserve requirements and they’re a key tool of Federal Reserve monetary policy. It’s the Office of the Comptroller of the Currency who is responsible for setting the terms of this regulation.

These are the types of transactions covered under Regulation D:

  • Official bank check withdrawals
  • Wire transfers
  • Debit card transactions from money market accounts
  • Automated Clearing House (ACH) withdrawals or those from other payment services
  • Any overdraft protection withdrawals from a savings account

It’s the last of these which might jump up to bite you. With the onset of automated banking tools, those six transactions can happen in a few moments.

Regarding savings accounts, banking institutions are required to reserve the right to call for a minimum of seven days’ written notice of a withdrawal. While the Federal Reserve never really enforces this rule, it is on the books.

According to Regulation D, bank reserve requirements call for each individual bank to maintain either cash their vaults or to keep a regulated balance in a Federal Reserve Bank account.

The Fed specifies which types of accounts – and sets the rules – for calculating reserve requirements. Such reserve requirements apply to various types of deposits and liabilities, and while the Federal Register says savings deposits are not subject to reserve requirements, “transaction accounts” are subject to that requirement.

There are some exceptions to Regulation D requirements such as the fact that withdrawals and transfers which are unlimited (such as ATM withdrawals and withdrawals made through a branch bank teller).
Here’s Why You Need to Know Regulation D

Getting on the wrong side of Regulation D can mean you pay large transfer fees or that your high-yield savings account might be converted into a non-interest bearing transaction account.

There are banks out there who charge fees of up to $20 per transaction for each transaction over the Fed limit.

While it’s rare, it’s not unheard of that some banks could close your savings or money market account if Regulation D violations persist.

So knowing your way around Regulation D restrictions is key to knowing which savings or money market account is the right fit for you. If you thing you might frequently transfer funds online from a savings account to a checking account, consider Regulation D when you select which savings accounts to open.

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