What Are Excessive Transaction Fees?

Excessive transaction fees are penalties incurred by consumers when they make too many withdrawals from a savings account or money market account in a single month.

These fees were once tied to a federal law (Regulation D) that capped certain types of withdrawals and transfers from savings accounts to six per month. However, the Federal Reserve suspended the six-per-month limit in April 2020 to give consumers greater access to their funds during the pandemic. Transactions limits (and fees) are still optional today; some financial institutions impose them and others don’t.

Since most people want to avoid fees as often as possible, read on to learn how excessive transaction fees work and how much they cost.

What Is an Excessive Withdrawal Fee?

Excessive transaction fees (also called excess transfer fees, withdrawal limit fees, or excessive withdrawal fees) refer to penalties for excessive withdrawals from any type of savings account. Historically, Regulation D restricted consumers to six “convenient transfers and withdrawals” each month.

Though the Federal Reserve revised Regulation D in 2020, many banks have maintained the six-transaction limit, while others have increased the number of allowable transactions from savings accounts. If you exceed your bank’s transaction limit, you may get hit with an excessive withdrawal fee.

If you repeatedly exceed them, you may face more than fees — the bank could potentially convert your savings account into a checking account, which could mean losing interest and potentially getting hit with monthly fees.

Recommended: What Is the Difference Between a Deposit vs. Withdrawal

Types of Transactions Considered

Not every withdrawal from a savings account counts toward the transaction limit. Below are the types of transactions that could get you to the six-a-month max:

•   Electronic funds transfers (EFTs), like when you transfer money from your savings account to checking account (or transfer money from one bank to another)

•   Automated Clearing House (ACH) payments, including online bill pay

•   Pre-authorized transfers, like overdraft transfers to avoid overdraft fees

•   Wire transfers

•   Online and phone transfers

•   Debit card and check transactions drawing from the savings account.

Notably absent from this list are in-person withdrawals at banks and ATMs. Such withdrawals typically do not count toward a bank’s transaction limit. You can generally also move funds from savings to checking at an ATM or with a teller in person without it counting toward your limit.

How Much Do Excessive Transaction Fees Cost?

Though Regulation D previously specified a maximum of six convenient withdrawals, it did not specify the amount of any resulting excess transfer fee. Financial institutions were free to set that amount — and still are today, if they continue to charge excessive transaction fees.

Typically, excessive transaction fees cost between $3 and $5 per transaction. Under Regulation DD (Truth in Savings), financial institutions must disclose the fee amount (if applicable) at account opening; if the bank changes the amount afterward, it must legally notify you at least 30 days before the change.

If you’re not sure what your bank charges, you can typically find this information on the bank’s website or in the fine print of your account documents.

Recommended: What Are Bank Transaction Deposits?

Why Do Banks Charge Excessive Transaction Fees?

Before the Federal Reserve revised Regulation D, banks were expected to either prevent excess transactions from savings accounts or monitor for them. One way institutions discouraged customers from exceeding the six-per-month limit was by charging excess withdrawal fees.

The federal government created Regulation D to ensure that financial institutions had enough cash reserves available. Though this meant consumer funds were a little less liquid in a savings account or money market account, banks made such accounts appealing to consumers by offering interest on those funds. Consumers who wanted easier access to their money could use a checking account.

Even though the Federal Reserve has eradicated that mandate, some banks have chosen to continue to maintain transaction limits and charge fees if customers exceed them. The reasoning for this decision may vary at each financial institution, though banks generally leverage fees to make a profit (they are a business, after all).

And remember: The federally imposed transfer limit previously served to ensure banks maintained proper cash reserves; banks still charging this fee may be doing so to discourage excessive withdrawals and thus protect their reserves.

Tips to Avoid Excessive Transaction Fees

How can you avoid excessive transaction penalties? Consider these tips to cut out this common bank fee.

•   Finding a bank that doesn’t charge excess transfer fees: Some banks do not charge excessive transaction fees.

•   Using your checking account: Banks may leverage fees when you make too many savings withdrawals by writing a check or paying bills online. Rather than using your savings account for such transactions, you may benefit from using a checking account, where such fees don’t apply, and making withdrawals from the cleared funds in that account.

•   Banking in person or at ATMs: Withdrawals at physical bank branches and ATMs typically don’t count toward your limit. By using these options to take funds out of your savings account (or money market account), you should be able to avoid excessive withdrawal fees. Just keep in mind that there may be ATM withdrawal limits in terms of how much you can take out in a certain time period.

•   Making fewer (but bigger) withdrawals: If you’re able to anticipate your needs throughout the month, you may be able to make one or two big electronic funds transfers from savings to checking each month, rather than several smaller ones. Doing so may mean you can avoid excess transfer fees.

•   Opting out of overdraft coverage: If your savings account is tied to your overdraft program and you overdraw too many times in one month, you could wind up paying an excessive transfer fee. You can avoid this by opting out of overdraft protection (though it’s crucial that you understand what that means for your checking account if you overdraw). Or you might tap a line of credit as the source for your overdraft protection instead of your savings account.

•   Getting bank alerts: Monitoring your bank account is good for several reasons, including fraud protection and avoiding overdrafts. Opting into banking notifications can also help you keep track of when you’re approaching the monthly withdrawal limit.

The Takeaway

Though federal law no longer mandates limits on monthly savings account withdrawals, many banks and credit unions still charge excessive transaction fees. To avoid such fees, it’s important to monitor your monthly transactions and find other ways to access your savings. For example, you may be able to avoid excessive transaction fees by using ATMs or making fewer, larger transfers and/or withdrawals. Finding a bank whose policies are flexible and suit your needs is a wise move too.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How much are excessive transaction fees?

Excessive transaction fees can typically range from $3 to $5 each, depending on the institution’s policies.

Do all banks charge excessive transaction fees?

No, not all banks charge excessive transaction fees. Before signing up for any account, it’s a good idea to read the fine print, including the fee structure. Federal law requires that banks disclose these fees to consumers.

Why do banks charge excessive transaction fees?

Regulation D was initially created to ensure banks could maintain enough cash reserves. Though Regulation D no longer limits convenient withdrawals from savings accounts to six, many banks still impose monthly transaction limits and will charge you a fee if you exceed them, potentially to protect their reserves and/or to make a profit.

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