If you have a savings account, you can’t make more than six "convenient" withdrawals per month. Exceed this limit occasionally and your bank may decline your excess transactions or charge you a fee. Exceed this limit often and your bank will convert your savings account to a checking account or close the account altogether.
The six-per-month limit applies to these types of savings account transactions:
Why Is There a Six-Transaction 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 $100 in your bank account, the bank turns around and uses most of that money for other things, such as consumer loans, credit lines, and home mortgages. The bank holds on to 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 on hand. Checking accounts are designed to handle lots of transactions. Money is constantly flowing into and out of them. As a result, it’s difficult for a bank to rely on its customers’ 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, however, are designed to mostly receive deposits, and customers can make as many deposits to their savings accounts each month as they want. But savings accounts aren’t meant to be used 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 certain ways: by visiting a teller in person, by withdrawing cash from an ATM, by transferring money from savings to checking at an ATM, or 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 like 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 on hand all the money you deposit? Don’t be. The Federal Deposit Insurance Corporation 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 large 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.