Regulation D Is Outdated

by Joseph · 26 comments

in Miscellaneous

I understand the purpose of a savings account completely: they are to be used to put money into and to keep it there.  However it would be an insane idea to think that one would not have the ability to access that money with any level of ease.  The Federal Reserve however seems to think otherwise; convenience to them is not something that we as consumers should be allowed to have when it comes to accessing our money.  Let me explain.

Last month I switched to a new brokerage account and transferred money from my savings to the brokerage account several times.  I also payed off a large credit card bill with money from my savings.  I also miscalculated the amount that I could transfer to my savings from my checking without leaving myself short on cash in the checking account.  I messed up, just a little bit.  I had to transfer money back from my savings to my checking to cover some basic expenses.  Pretty simple mistake to make really… I’m sure just about everyone out there has done that at some point in their life.

The point is that I made several transfers from my savings to my checking account throughout the month of May, as well as a few ACH transfers from my savings to my new brokerage account.  The problem with this is – as some of you may be aware – that the Federal Reserve board has set limitations on the number of transfers you can do OUT of your savings accounts in any given month.  The limit?  Six.  Oops… I went WAY over that.  So at the end of the month I notice a fee in my account for excessive transfers.  There goes my interest for the last five months.  Naturally I called my bank (USAA) to ask them to reverse the fee.  After I asked they offered to reverse half of it, which I gladly accepted.

I decided to do some research after this fiasco to learn more about the Federal Regulation that has caused me so much grief.  It’s called Regulation D and it can be found at the Fed’s Reg D site but so as to alleviate the pain that you would encounter trying to read such legal mumbo-jumbo I will paraphrase the relevant parts of Reg D…. right after I quote directly from it.

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

That part is pretty straightforward.  You (as the depositor) are not authorized to take money out of your savings account more than six times a month (either by withdrawal or transfer) unless you do so at an ATM or at one of your banks branches.

Ok.  I understand the reasoning for the limits on taking money out of a savings account – after all it should not be used like a checking account (in that you take money out of it on a daily basis).  There should not be any reason, however, to limit a person to six or less convenient withdrawals or transfers from their savings account.

We are in a new age today.  We’re more technology savvy than any previous generation has ever been.  We demand convenience.  In the age of internet banking where I can literally do all of my banking without ever leaving my house there should be no reason to limit transfers from a savings account to six.  I understand the limit (a savings after all is not a transaction account), but six is just… not enough.  These limits were set in the 1980s when Reg D was first enacted.  If you ask me it’s more than just a little outdated.  When this was created the internet was hardly even known to be in existence, let alone internet banking.  If you ask me it’s time for a revision.

What do you think?

{ 25 comments… read them below or add one }

rich July 1, 2008 at 2:23 pm

talk about too much government in our everyday life. i am ok with saftey regulations for our savings, but requireing me to drive my car to a branch office to withdrawl money for my own account is wasteful, and just plain lacks common sense.

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Ali Salehian August 30, 2008 at 9:59 pm

The banks should put a notice out on their monthly statements and explain the regulation D for their customers. I had the same problem because I was not aware of such regulation. The check that I issued to my contractor was bounced and he was penalized for the check and above all his bank will not accept any deposit by check for three months. I paid the penalty for the bounced check and appologized a hundred times for the inconvenieces I caused him.
One more thing, my bank should have notified me the moment that they realized they cannot make the transfer from saving to cover the check. I have been working with this bank for more than twenty years and I expected some curtasy.
A. Salehian

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Margaret September 10, 2008 at 2:28 pm

This is a response to Ali’s post. It is required by the Truth in Savings Act that the bank disclose the Reg D limitation to you when you open your account. If you have your original disclosures and they don’t mention anything about Reg D you can demand the fees be refunded and, in fact, they cannot limit the amount of withdrawals on your account until they provide you proper disclosures.

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Banker Bee February 4, 2009 at 7:37 am

What you all need to realize is that the purpose of Reg. D is not to make your life miserable. Banks need to keep a certain amount in reserves that they cannot loan out. On a checking account, the reserve sometimes around 10%, but on a Money Market or Savings account the reserve is 0%. The bank assumes that you are not going to use your MMDA or SAV like a transaction account and therefore does not have to keep all your money on hand. However, with a transaction account they need to keep at around 10% because you are typically constantly doing transactions on the account.

Obviously, I’m a banker, and I work in deposit compliance. I allow my customers to go over the limitations one time in a quarter, but if they do it more than once I send them a letter explaining the requirements of Regulation D. If they exceed the limits more than once in the second quarter then I change their account to a Checking. Banks can be fined heavily for not following Regulation D which is why it is so important consumers realize its not the bank just being a jerk, this is a Federally regulated requirement.

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Joseph February 8, 2009 at 2:20 pm

Banker Bee,

Thanks for the comment. While I understand and appreciate your thoughts on the matter (I’m in banking too), you still seem to have skipped over the entire point of this post. I didn’t say that the banks were the jerks. I only stated that I believe Reg D is outdated and is in need of being updated. For that matter most banking regulations are outdated, but that’s an entirely different story.

Thanks for the comment and I hope to see you around more often!

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Concerned Citizen April 2, 2009 at 10:02 pm

Banker Bee, et al.

You’re all overlooking a major point. The number of transactions, which the authors of Reg D were ostensibly concerned about, has NOTHING to do with the amounts transacted.

If a person transfers THEIR OWN MONEY out of their savings 7 times in a month, but also transfers THEIR OWN money 1 or more times back into their savings account with deposits that are equal or greater than the total withdrawals; just what is the BFD?

Also the “regulation” does not specify the fee banks or credit unions should charge. Some charge $10, some $30, and some $45 or more, and most (all?) inhibit future transactions that will incur more fees.

Don’t kid yourself, Reg D is simply a means for banks to charge more fees, while conveniently claiming they’re not responsible.

Banks SHOULD push back on Reg D in the names of their disatisfied customers, but they’re not doing that, are they?

Wake up people:

Add your recent Reg D bank fee to the trillions of dollars in bail-outs and stimulus for socialism that is robbing tax payers, your children, and their grandchildren of YOUR wealth and YOUR families’ financial freedoms.

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Jaka September 25, 2009 at 1:24 pm

I just got this ridiculous charge assessed on my account. What infuriates me is that they didn’t bother to asses it until the end of the statement cycle and they charged me $180 – $15 for each occurrence. If they had stopped my from accessing my savings the first time or assessed the fee the first time, I would have called – found out the issue and not done it again. I had no idea I couldn’t access my own money. I find it hilariously ridiculous that if I take the time of their employees and go into the bank to do this every day, it is free but if I do it online, I’m penalized. I need to get the corporate complaint address. I worked in the financial industry and my experience is keep going higher, eventually you’ll get to someone high enough that doesn’t want to waste their time on your “menial little fee complaint” and they’ll adjust it.

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Xavier November 25, 2009 at 8:36 am

My problem with Reg D is that the claim it must be followed or the institution will be penalized is BS if every institution has their own variation of following it. How is an ATM any different than online or phone? How can one institution charge a penalty (or not) while allowing more than six transfers and another stopping any future transactions?

If an institution calls their online interface a “web-branch” then one should consider it to be the same as a “brick and mortar” branch and the discussion should be done. But i get the impression some institutions are using Reg D to squeeze other fees from their customers.

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angela June 24, 2010 at 7:52 pm

Thomas Jefferson said in 1802:
‘I believe that
banking institutions are more dangerous to
our liberties than standing armies.
If the American people ever allow
private banks to control the issue of their
currency, first by inflation, then by
deflation, the banks and corporations that will
grow up around the banks will deprive the people
of all property – until their children
wake-up homeless on the continent their fathers
conquered.’

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Ken Rayment December 21, 2010 at 8:25 pm

I agree, this fee is stupid. Too much government involvement here..and I also agree with the previous posters comment – this needs to be updated…in the law anyhow..

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erika December 27, 2010 at 7:18 pm

I find it very odd that this post is dated 2008…my credit union JUST started following this regulation in 2010! I had never heard of it before and WHAM! Hit with fees…

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Jazzika July 1, 2011 at 8:57 pm

I find this article a very good read and this regulation more than insane. I was just charged $60 this month with no explanation at all, I had to call to even become aware of this. My Savings account was opened in the 80′s when I was a baby, by my parents. There is no documentation that I have ever received about this Regulation, and this Regulation pre-dates internet banking entirely. In researching, banks deal with this Regulation’s fees differently, which leads me to believe banks choose to enforce a higher penalty based on their own money-grubbing standards. Needless to say, I am doing everything in my power to rid this ridiculous charge. They have no right to do this to anyone.

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Joseph July 20, 2011 at 11:09 pm

@Jazzika

Thanks for the comment. Sorry to hear you got charged fees from Regulation D. Were you able to get any of them reversed? Your bank should have sent you a warning letter telling you about the transfer limitation before actually charging any fees. I’m assuming either they didn’t or maybe you just missed it. Either way it’s a total bummer and I feel your pain… although I’ve been careful over the past few years and managed to avoid dealing with this fiasco again.

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Sherry September 1, 2011 at 1:00 pm

I have been employed at a Credit Union for 28 years. I also fee that in this age of technology, Reg D is far outdated. However, I do feel that customers/members should take some responsibility for their own transactions. Take 5 minutes to balance your account and the banks and credit unions of the world will be more than happy to NOT charge you a fee.

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Natalie March 16, 2012 at 1:21 pm

Sherry,
I too have been employed at a few different credit unions over the course of 10 years, and I feel the Regulation is also outdated; however, telling someone how they should manage their savings and checking accounts is ridiculous. Why is it that only Credit Unions seem to enforce the Reg D limits? I worked at a bank for 5 years, and they didn’t even know what that regulation was let alone enforce it. Charging at $40 per transaction fee for using money in your own account is ludicrous. You’ve been in the box too long to see how illogical it truly is I think.

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jason March 6, 2012 at 8:23 pm

I would have prefered a fee, instead my capitalone direct banking money market account was closed without my prior notification. I transfered funds from my savings to checking more than 6 times. No email, phone call, alert or message. When I called them they said a check will be mailed to me in 2-3 weeks. Also, my direct deposit will be returned the next day so I will need to wait until next month to have access to my money.

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Joseph March 27, 2012 at 4:36 pm

The problem lies not with Reg D, but with ourselves. As an administrator for a credit union overdraft program, I repeatedly hear the excuse “but I was never told about this.” Simple fact is, they were provided the disclosures and failed to read them. Too many people nowadays expect to be spoon-fed information rather than do their due diligence.

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Patrick April 17, 2012 at 2:23 pm

Really? Having this information somewhere in the small print of the account information is insufficient. This is obviously something that should verbally be brought up and thoroughly explained during the opening of an account. Spoon fed? The fact that you know what you’re doing for a living is refreshing, so do probably all of those who were caught off guard by this inane limitation. If we were all experts at your job, who would need you? And why don’t you explain why this regulation is still necessary, why it is so important that it can be bypassed by using an ATM of a live teller, and why in this new on-line age the number of transactions has not been adjusted upwards to reflect the times?

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Brian in AZ April 5, 2012 at 10:49 am

The purpose of Reg D is to assist the Federal Reserve in managing the M1 and M2 Money Supply. In order to know how much money is in the M1 money supply financial institutions must report to the Federal Reserve how much money is in checking accounts (demand accounts), currency, coin, ATMs, and negotiable instruments (ie. Travelers Checks). Someone back in the late-70′s decided that six (6) was the magic number of transactions that would be allowed in savings/MMA accounts (M2) in order for those accounts not to be considered “transaction” accounts. The reason your bank/credit union/S&L limits it at six is for REPORTING purposes. I understand the purpose for Reg D, the argument should be is six (6) still the appropriate number? I think so… do you really need to perform more than six Reg D transfers from a “savings” account each month? If you say “yes” than you have your money in the wrong account. Why does my bank charge a fee? So you will STOP treating your savings account like a transaction/checking account and messing up the reporting. Needless to say the “they didn’t tell me argument” doesn’t work because generally nobody reads the notices they get in the mail or the disclosures they receive – how do you think we got into this mortgage mess?

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Patrick April 17, 2012 at 2:33 pm

How does this “mess up” the reporting process? At any moment the computers in these institutions can give an immediate and accurate account of all such balances. If I transfer some funds from my money market to my checking account a minute later, will the system collapse? Someone in the late 70′s did not have the foresight to see that six was going to be woefully insufficient when on-line banking became the norm. Or maybe he or she did, and all the conspiracy theorists are right — it is just a way to extract more fees from the public when they gained such ease of access over their own money that they could move it into low interest transaction accounts only when necessary?

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Michelle May 30, 2012 at 11:43 am

At rates of .50% on savings accounts- why even bother keeping funds in a savings during this economy? Interest used to be paid out and added up, now it’s nominal at best. Plus, I have a free checking account, unlimited everything…every place has this in the marketplace, be responsible for your money.

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Raymond June 8, 2012 at 9:02 am

I also found out about Reg. D by accident. It was rather aggravating. I do have a couple of automatic payments set to come out of my savings account but as long as I keep it under the limit, I’m okay. My employer deposits my pay directly into my savings but I have the option for them to split the deposit into multiple accounts which is handy. Reg. D in my opinion is dumb but, it’s probably one of those things that is practically impossible to get changed. I’m sure there are probably some other “work arounds” or different options a person could try for paying bills or managing their financial affairs without running into Reg. D.

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Mike July 13, 2012 at 3:41 pm

What kills me about Reg D in this era of internet banking is it almost encourages the consumer to not even have a savings account. I have been hit by these fees and all it comes off to me is one they just don’t want to pay me interest, two they don’t want me to have access my money so they can use what I have to invest it elsewhere as if its there own ,and three they want to charge me fees for the right to receives pennies in interest. Honestly I misewell keep my saving under my bed with all these stupid rules.

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landon January 22, 2014 at 6:21 pm

Reg D slows the liquidity of money in savings accounts in order to stress test the banks. If people used them like checking accounts, it would become more difficult to determine if reserve requirements were met and therefore difficult for banks to know how much they can lend and still be FDIC insured. If you want to use your money like it’s in a checking account, that’s fine. Get a checking account

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Carl Tyler January 23, 2014 at 11:57 am

Unfortunately I have obsessive compulsive behavior.
I did not know about these charges either.
The other day I received .01 cent in interest.
I moved it to my checking account because I do not like to have uneven amounts in my account. Well Bam ! $10 fee.
I called the credit union they said ” sorry can’t reverse it as it is a federal fee” Is this fee paid over to the government ?

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