If you have a savings account, you can't make more than six "convenient" withdrawals per month. If you occasionally exceed that limit, your bank may decline your excess transactions or charge you a fee. If you exceed that limit often, your bank will convert your savings account to a checking account or close the account altogether.
This six-per-month limit applies to these types of savings account transactions:
- Consumers can make six normal withdrawals per month from their savings accounts.
- Some less common withdrawal types, such as visiting a teller in person, don't count toward the limit.
- The primary reason for the limit is that banks only hold a small percentage of consumers' deposited funds in reserve.
- The federal government insures the money you deposit in your bank up to $250,000 per depositor.
Why Is There a Limit?
The money in your savings account is yours, so why can't you access it as often as you want? Because a federal law called Regulation D doesn't allow it.
Banks operate under what's called a fractional reserve system. When you deposit any amount of money in your bank account, the bank uses most of that money for other things, such as consumer loans, credit lines, and home mortgages. The bank holds only a small fraction of its customers' deposits. This is how banks make money and how consumers are able to borrow.
Distinguishing among different types of accounts helps banks keep enough reserves. Checking accounts are designed to handle many transactions. Money is constantly flowing into and out of them. As a result, it's difficult for a bank to rely on customer checking account balances to meet the federal government's reserve requirements. In fact, the government doesn't even require banks to keep reserves on checking account balances.
Convenient vs. Inconvenient Transactions
Savings accounts are designed to receive deposits, so customers can make as many deposits to their savings accounts each month as they want. But savings accounts aren't meant for frequent withdrawals, only occasional ones. Money transfers you make online, by phone, through bill pay, or by writing a check are considered convenient, and the law limits those. That's why it's a good idea to pay your bills from your checking account, not your savings account.
You might use your savings account to pay large, irregular bills, such as insurance or property taxes, and that's fine. You are entitled to those six withdrawals per month. In fact, you can actually exceed that limit if you withdraw money in a few ways:
- By visiting a teller in person
- By withdrawing cash from an ATM
- By transferring money from savings to checking at an ATM
- By asking your bank to send you a check
Since these methods are considered inconvenient, they don't count toward the six-withdrawal limit. All the same, banks may still charge you for more than six withdrawals or transfers from savings per month even if some of the withdrawals use an inconvenient method.
The six-limit rule applies to transactions such as overdraft and bill-pay transfers and debit card transactions, but not to "inconvenient" transfers done in person at your bank or at an ATM.
Don't Fear Fractional Reserves
Does it make you nervous that your bank doesn't really keep most of the money you deposit on hand? It shouldn't. The Federal Deposit Insurance Corporation (FDIC) protects the money you put in your bank. Up to $250,000 per depositor—per institution—is covered. If your bank should become insolvent, FDIC insurance means you won't lose your money. If banks did have to keep 100% of customers' deposits on hand, it would be harder for you to get a loan to buy a car, buy a home, or start a business.
Besides using a checking account for most of your transactions, there are a couple of other ways to avoid running up against Regulation D's limits. If you expect to use your savings to make more than six transfers or payments in a given month, make one larger transfer from your savings to your checking account and then conduct your transactions out of your checking account. If you're already at the limit, you can move more money out of savings using the methods mentioned earlier.