If you have a savings account, there is a limit to how many withdrawals you can make. The savings account withdrawal limit is no more than six "convenient" withdrawals per month. Money transfers you make online, by phone, through bill pay, or by writing a check are considered convenient, but certain other withdrawal types don't count toward the limit.
If you occasionally exceed the 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.
- The savings account withdrawal limit is no more than six per month and applies to transactions such as overdraft and bill-pay transfers and debit card transactions.
- Some 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 Savings Withdrawal 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.
There are no limits to the number of deposits you can make to a savings account.
What Are Convenient Transactions?
Savings accounts are designed to receive deposits. But they aren't meant for frequent withdrawals, only occasional ones. That's why it's a good idea to pay your bills from your checking account, not your savings account.
This six-per-month limit applies to these types of convenient savings account transactions:
- Overdraft transfers
- Electronic funds transfers (EFTs)
- Automated clearing house (ACH) transfers
- Transfers or wire transfers made by phone, fax, computer, or mobile device
- Checks written to a third party
- Debit card transactions
Which Transactions Do Not Apply to the Savings Withdrawal Limit?
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.
How to Avoid Withdrawal Limits
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.
Don't Fear, Your Deposits Are Covered
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. In this era of financial technology, it has become easy to transfer amounts in real time with no amount cap from one account to another. This solves the problem of limits and fees on savings accounts. You might enjoy the FDIC insurance on your savings balance and transfer with convenience to other accounts at once as needed.
Why are savings account withdrawals limited to six per month?
Regulation D ensures that banks have enough cash on hand to meet withdrawal requests by limiting how customers are able to use their savings accounts. Although institutions aren't required to keep any reserves for customers' savings account balances, they must keep reserves for transaction accounts—in other words, checking accounts.
How can the six withdrawal limit be avoided?
You can get around the limit by transferring money from savings to checking at an ATM, withdrawing from an ATM, visiting a bank and making a withdrawal in-person. You can also call the bank and request a check be mailed to you.
What happens when you exceed the limit?
If you occasionally exceed the 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
The six withdrawal limit shouldn't affect your life if you use your savings account as intended—mostly to make deposits and accumulate funds. If you make most of your outgoing transfers and withdrawals from your checking account, not your savings account, you'll avoid many fees. If making frequent withdrawals is necessary, try making one or two larger transfers from savings to checking instead of six or more smaller ones.