What is Regulation D – Forbes Advisor
Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
You can now have more freedom to make withdrawals from your savings or money market account thanks to a pandemic-era rule change that the federal government left intact.
Regulation D affects how banks and credit unions classify certain types of accounts. In April 2020, during the first wave of Covid-19 in the United States, the Federal Reserve Board announced changes to Regulation D in an effort to make it easier for people to access their savings deposits without penalty, ” at a time when financial events associated with the coronavirus pandemic have made such access more urgent.
While some banks and credit unions have responded by waiving their fees for excess withdrawals from savings accounts and MMAs, others have kept their pre-Covid-19 penalties in place. You may be able to access your savings money more easily now, or you may still incur fees, depending on where you bank.
What is Regulation D?
Regulation D is a federal rule governing how banks and credit unions handle your savings deposits. Until April 24, 2020, Federal Reserve regulations limited the number of withdrawals you could make from a “savings deposit” account, which included both savings and money market accounts.
Regulation D required savings accounts to be limited to a total of six “convenient transfers and withdrawals” per month. These included:
- Automated Clearing House (ACH) Payments and Electronic Funds Transfers (EFT)
- Bill payments taken directly from your savings account
- Debit card transactions
- Overdraft transfers (where you link your savings account to a checking account as a backup for overdrafts)
- Transfers made by computer, mobile device or phone
- Checks made out to a third party
- Bank transfers
There were two major exceptions to Rule D:
- You can make unlimited withdrawals at an ATM or in person at a bank. (These transactions were not considered “practical”.)
- You can make unlimited withdrawals over the phone, but only if the cashier sends you a check in the mail. (If the bank processed your request online, it counted towards your monthly limit.)
Regulation D required savers to be careful with the number of transfers or withdrawals they made. If you go over the monthly limit, your bank may charge you a fee per excess withdrawal, close your savings account, or convert it to a checking account.
Why does Regulation D exist?
Banks and credit unions are required by federal law to keep a certain amount of cash in hand — also called required reserves — to ensure they can cover customer withdrawals.
Regulation D helped to ensure that banks had adequate reserves by limiting the number of withdrawals customers could make each month from savings and money market accounts. The rule has never applied to checking accounts, which is why these have always allowed unlimited withdrawals.
However, as part of the federal government’s financial response to the Covid-19 crisis, the Fed has made changes to Regulation D so that people can dip into their savings more frequently without penalty.
How is Regulation D different?
As part of the Regulation D review announced in 2020, the Fed relaxed requirements for how banks handle savings deposits. Instead of limiting bank customers to six convenient transfers or withdrawals from a savings or money market account per month, Fed rules now allow unlimited transfers or withdrawals. However, individual banks and credit unions may still have limits in place.
This six-month limit was removed as the Fed determined that reserves were sufficient to no longer warrant restrictions on the number of monthly withdrawals. The move was also part of the Fed’s stated strategy to help consumers who were experiencing financial hardship as a result of the coronavirus pandemic and who could be helped by having more frequent access to their savings.
The change has no stated end date. According to the Fed’s Savings Deposits FAQ, “The Board does not intend to reimpose transfer limits but may make adjustments to the definition of savings accounts in response to comments received on the rule. provisional final of the Council and, in the future, if the conditions guarantee.”
The rule change also has other specifications for how banks and credit unions can manage and administer bank accounts and their financial reserve requirements, but most consumers saw no other significant changes in their accounts.
For example, your savings account will always be called a savings account, even if you make 10 convenient transactions in it per month. Your savings account will also continue to earn interest according to the bank’s normal procedures, even if you make more transactions than usual from the account.
Do you need to worry about Regulation D?
Unfortunately, Regulation D is still something you need to be careful of. Although it has been suspended at the federal level, many banks still have the same withdrawal limits in place.
This means that you could be charged excessive withdrawal fees or risk having your account closed if you make more than six outgoing transactions per month.
For this reason, it’s important to review your savings account disclosure or call your bank to find out what limits and fees may apply.
How can the changes to Regulation D help your finances?
Covid-19 has caused millions of Americans to lose jobs and struggle to pay their bills, and many consumers have had to dip into their savings as a result. The changes to Regulation D were intended to make it easier for people to access their savings, if needed, several times a month, without losing access to the account or paying additional fees.
Before Covid-19, Regulation D stated that banks and credit unions had the right to convert a savings account to a checking, or even close a savings account, if the customer made too many withdrawals or transfers in a month. The change to Regulation D gives bank customers more flexibility in deciding when and how to access their savings.
Now, if you’re struggling to pay your bills and need extra money several times a month, you have the freedom to withdraw or transfer money from your savings as often as you like.
Will the changes to Regulation D lead to more bank charges?
One of the concerns you may have about the Regulation D changes is whether they will require your bank to charge new or higher fees.
The Fed’s Regulation D guidelines do not affect whether banks or credit unions can charge fees for excess withdrawals from savings accounts. Although financial institutions were encouraged to allow additional withdrawals free of charge, they were not required to change their existing policies. If your bank was already charging excess withdrawal fees, it will likely continue to do so.
Will Regulation D Changes Affect the US Savings Rate?
Now that Regulation D has been changed to allow more frequent withdrawals from savings accounts, is this changing behaviors and could it unintentionally motivate Americans to save less money?
It’s hard to say with certainty. The U.S. personal savings rate has trended lower for much of 2022, but changes to Regulation D are unlikely to be the main cause, especially considering that Savings rates have increased multiple times in 2020 and 2021. Ultimately, macroeconomic factors such as personal income, consumer spending, and inflation are far more influential in how much Americans save.
Your best bet? Keep saving
The Fed’s removal of the six-withdrawal limit on savings accounts gives you more flexibility to access your savings. However, withdrawing money from savings only when you really need it is still the best solution.
Regardless of what happens next with Regulation D, it is important to be careful, disciplined and deliberate in how you use your savings deposits. And with the rise in savings account rates in recent months, maintaining your savings habit has become even more rewarding.
Try to leave your savings in savings. Be careful not to overdraw your checking account and set up alerts to notify you in advance when your checking account balance is getting low. Try not to use your savings account as a regular source of money or as a way to pay your monthly bills. Ideally, you should leave your savings alone as much as possible and let compound interest do its magic to grow your savings over time.
Regulation D is no longer in effect, but many banks still apply the rule. Review your savings account disclosure to find out what happens if you make more than six withdrawals per month. And if necessary, upgrade to a better savings account that doesn’t charge fees.
Find the best online savings accounts of 2022
Frequently Asked Questions (FAQ)
When is Regulation D reset?
As of October 2022, Regulation D has been suspended indefinitely. The Federal Reserve said it “does not intend to reimpose transfer limits.”
Can you circumvent rule D?
There are two main ways to get around Regulation D: switch to a checking account or withdraw money using an “inconvenient” method, such as an ATM or branch. However, you will want to check your bank’s policy first. Some institutions count all withdrawals against the Reg D banking limit, regardless of how you make them. Chase is an example.