What Is the Federal Reserve’s Regulation D?

Regulation D Explained

The front facade of the Federal Reserve Bank building.
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If you’ve ever made an electronic withdrawal or transfer from a savings account, you may have gotten a notice reminding you that you’re limited to making just six of these transactions per month. That rule stems from a federal regulation, the Federal Reserve’s Regulation D, which, up until this past spring, mandated that banks impose these limits.

Learn more about what Regulation D is all about, why it’s been temporarily suspended, and what that actually means for you as a consumer.

As of April 24, 2020, the Federal Reserve has paused the Reg D six-withdrawal limit (although banks may continue to restrict withdrawals).

What Is Regulation D?

The Federal Reserve’s Regulation D is a federal mandate that limits consumers to making just six “convenient” withdrawals or money transfers each month from savings accounts and money market accounts. Normally, if you go beyond the limit, you will face fees or possible account closing. 

The rule encourages people to use checking accounts for everyday transactions like paying bills, while using their savings and money market accounts as tools to keep larger sums of money secure. That helps banks maintain an ample amount of reserves.

Alternate definition: According to the Federal Reserve’s guidelines, Regulation D “specifies how depository institutions must classify different types of deposit accounts for reserve requirements purposes.”

Alternate name: Reg D

How Does Regulation D Work?

Regulation D is really all about designating certain consumer bank accounts—money market and savings accounts—as a means for people to store their money for the long term. By limiting the number of transfers and withdrawals per month, the regulation prevents consumers from using these accounts to pay bills or conduct other everyday activities. After all, that’s what checking accounts are for. 

The Federal Reserve’s goal is for these accounts to remain mostly untouched and stable so that banks can keep ample funds in reserve in their vaults. 

To enforce the rule, banks are obligated to let their customers know which transactions are limited. The list of “convenient” transfers that are restricted includes things like:

  • Third-party or ACH payments (such as through services like Zelle) 
  • Online transfers to another bank account (even if it’s at the same bank)
  • Payments via debit card or check
  • Automatic, pre-authorized transfers or withdrawals
  • Overdraft protection withdrawals from a linked checking account

The limit only applies to convenient transfers. Account holders may withdraw cash via ATM or by visiting a bank branch without limit. 

Should customers go over the six allowable transactions, fees will be incurred (usually around $5 to $10). The bank can also reclassify the account as a transaction account. In other words, the bank can force the account closed and turn it into a checking account instead, possibly costing you interest.

Pros
  • Helps account holders save more

  • Protects bank reserves

Cons
  • Fees incurred or account status changed if you exceed the limit

  • Despite the temporary federal rule suspension, banks can still maintain the limit

  • Overdraft protection withdrawals from a linked checking account count

Pros Explained

  • Helps account holders save more: The purpose of savings and money market accounts is to keep your cash safe and to hopefully keep adding to it. The more inconvenient it is to take out cash, the less tempting it will be to do so.
  • Protects bank reserves: Helping people save is nice, but the real motivation for Reg D is to prevent banks from running out of reserve funds. Since we all want to be assured that our money will be there when we need it (and that the bank remains solvent), that helps all of us.

Cons Explained

  • Fees incurred or account status changed if you exceed the limit: Don’t plan to use your savings or money market for bill paying or other high frequency transactions because banks can charge fees or change the account into a checking account if you exceed transaction limits.
  • Despite the temporary federal rule suspension, banks can still maintain the limit: Even with Reg D on pause, individual banks can still enforce the six limit rule if they wish—they just can’t blame the Federal Reserve for it.
  • Overdraft protection withdrawals from a linked checking account count: If you overdraw on your checking account and use your savings as a back-up, that counts toward the six transaction limit.

Why Did the Federal Reserve Pause Regulation D?

When the Covid-19 pandemic hit this spring and brought with it an economic crisis, the Fed decided to pause Reg D as of April 24, 2020. This means that there are currently no limits on transfers and withdrawals from deposit accounts as far as the Federal Reserve is concerned. However, the rule still allows banks to keep the rule if they wish. The idea is to allow banks to give their customers more convenient access to their funds.

Especially during a time when people are discouraged from venturing out to visit bank branches in person, being allowed to conduct transactions digitally without worrying about reaching a limit makes sense. Plus, it’s more likely during this time that overdraft protections might be used more frequently. For those reasons, the Credit Union National Association (CUNA) was one of the groups that pushed the Federal Reserve to suspend the rule.

While easing the limits undoubtedly helps consumers, the central bank also notes in its announcement that as part of the Federal Reserve’s current approach to monetary policy, reserve requirements for both “transaction” accounts and “savings” accounts were set to zero, which eliminated the need to encourage banks to maintain the distinction between account types.  

Will Regulation D Be Phased Out?

As of now, there is no planned date for Regulation D to be reinstated.

Your best bet if you anticipate needing funds from your deposit accounts is to figure out how much you need, and then make one large transfer to your checking account where withdrawals aren’t limited.

How Changes to Regulation D Affect You and Your Savings Account

Regardless of Regulation D’s amendment, banks still decide whether or not to maintain and enforce account withdrawal limits. The key difference is that if they wish to still charge fees, it’s no longer because the Fed is imposing the rules.

Some banks are still proceeding with business as usual, so it’s best to pay attention to your notifications or contact your bank and ask about withdrawal limits or fees. 

Key Takeaways

  • The Federal Reserve’s Regulation D imposes a six withdrawal/transfer limit on deposit accounts, including savings and money market accounts.
  • Because of the Covid-19 crisis and changing monetary policy, Reg D has been temporarily suspended, with no announced resumption date.
  • Banks are still free to charge fees or suspend accounts if customers go over the six transaction limit, but they are not mandated to do so.
  • Check with your bank on the best options for you if you need to tap into savings.

Article Sources

  1. FederalReserve.gov. "Regulation D Rerserve Requirments," Page 1. Accessed Aug.13, 2020.

  2. Federal Register. "Regulation D: Reserve Requirements of Depository Institutions." Section C. Accessed Aug. 13, 2020.

  3. CUNA.org. "Fed Should Increase Account Transfer Limit Under Reg D." Accessed Aug. 13, 2020