Regulation D Is Outdated

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?

Comments

48 responses to “Regulation D Is Outdated”

  1. The banks will tell you that it is out of their hands and that they have to charge you for going over the transfer limit. In fact the banks hide behind the excuse where their small print begins: “Federal law says that…” or something to that effect. And who is it that lobbied for and probably wrote word for word that federal law?

  2. Arnold Schmidt Avatar
    Arnold Schmidt

    Only “Brian in AZ” actually said something about Reg D that is accurate in understanding how it really works. He wrote “The reason your bank/credit union/S&L limits it at six is for REPORTING purposes.”
    If you actually read the relevant section of the Fed Res regulation, 204.2(d)2, as I have you will see that it says:

    A deposit or account, such as an account commonly known as a passbook savings account, a statement savings account, or as a money market deposit account (MMDA), that otherwise meets the requirements of § 204.2(d)(1) *and from which, under the terms of the deposit contract or by practice of the depository institution, 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 (or similar period) of at least four weeks, 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, or by check, draft, debit card, or similar order made by the depositor and payable to third parties.

    The important part here is what is between the asterisks; it clearly states that the limitation is imposed by THE INSTITUTION, NOT the Fed. This implies that the only reason the banks and credit unions limit your savings acct transactions is 1) to make it easier for them to report on the money they have available, as Brian stated, and 2) to make money off the fees they collect when someone exceeds the limit. In my opinion, we don’t have to change Reg D, what we have to do is beat on the banks to stop limiting the transactions.

  3. MerlinG Avatar
    MerlinG

    Banks should never loan more than they have in hand. How is this justified practice? It’s basically gambling and dishonesty since they can’t make good on all the money if a demand were met. A so-called, “Run on the Bank” should never cause more than long lines, not financial chaos, since the bank should not loan what it does not possess.

    Of course, you banking snobs will try to inform me of some BS you learned either in school or through your career that the fractional banking system is the hallmark of capitalism, blah, blah, blah. But integrity flies in the face of your industry’s schemes.

    If banks are allowed to loan out what they do not have on hand, then as borrowers, we should be able to pay them with money we do not have. We need a fractional repayment system to counter this crockery.

  4. NADINE MERRILL Avatar
    NADINE MERRILL

    Question, Regulation D will give my bank permission to charge my debit card the amount of $27.00 penalty fee for paying my bill, when I actually have many times more sitting in my savings account and not my checking. My bank cannot transfer the amount because one is only allowed 6 transfers within the accounting month.
    Who gets the $27.00. My bank or the Federal Reserve?

  5. This Reg D instituted in 1933 does not make sense in 2017. Just received a letter ftom my bank about MY VIOLATION…I make 7 transfers from my savings to checking in one month.

    I have never in 40 plus years received such a notice. I/we need to determine how this ludricous law can be changed to bring it inline with current use of online banking.

  6. You say you understand that a Savings account is not a Checking account but you don’t treat your funds like you do. The reason for this regulation was to set guidelines for financial institutions to determine how much of your money they need to have immediately available to you at all times. I don’t know the percentages but they have to have less of your Savings account money available so they can invest more of it and thus pay higher dividends.
    So your solution is simple. Only move funds to Savings that you expect to leave there for an extended period of time and keep more of your funds in checking.

  7. A work around to this obscene regulation which is setup for large securities transactions. Transactions that can affect the balance of the banking institutions. I seriously doubt my $10 or $20 transactions in a months’ time to cover a check that is out will upset the financial world like an overdraft fee does to me. I have to mention if they begin to exceed their 6 transactions there is a form D. Regular people don’t get that and would probably get tangled up in the bureaucratic quagmire of filling one out. So, setup 2 checking accounts at your credit union. You have to setup another savings account which at my CU is a $5 minimum. Use your 2nd checking account as your transaction backup which has unlimited electronic transactions. BTW checking accounts usually have the same interest amount as passbook savings if you get uptight about the 20 or 30 cents a month of interest.

  8. So frustrating banks love using federal regulations to make money. They say saving accounts are not meant to be used as a checking account. You mean online. You can pull money from your savings using an ATM as many times within the month as you like but if you try to use modern day technology and do it from your phone FROM THEIR APP THAT THEY SET UP FOR THIS PURPOSE we’re going to charge you a fee. Not a $5 fee but a $15 fee. $15 for transferring $50. Banks don’t tell you about Regulation D and fees associated with it. I’m sure everyone found out when they were fined. What can I say other than this is stupid. I did close my savings. Not much in there and it’s not worth keeping it open. I did some research for banks that are better than others with their rules on Regulation D. US BANK is not one of them.

  9. Totally agreed. How do we lobby for change?

  10. BENJAMIN DAVID WUNDER Avatar
    BENJAMIN DAVID WUNDER

    I just want to know why it’s *six*. Why *six*?

    And the justification that it’s somehow *easier* to track is bullshit.

    If the government is concerned about the bank’s reserves, why not just increase the base limit? Having 0% of funds on hand is *asinine*. Make it 3% and cut the bullshit with savings accounts.

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