You might think the main difference between a checking account and a savings account is how you view them–one is for everyday spending, and one is for later.
But there are some major differences between the way savings and checking accounts work. One is that savings, including traditional and high-interest savings accounts, typically earn interest.
Checking accounts, on the other hand, generally offer no interest or a nominal interest rate.
The other main difference is that savings accounts typically come with cash withdrawal limits. A federal rule called Regulation D used to limit certain types of transfers and withdrawals—known as “convenient transactions”—from a savings deposit account to no more than six a month.
While that changed in April 2020, when the Federal Reserve removed the requirement that banks enforce the limit, many banks and credit unions have kept restrictions in place.
Here’s what you need to know about savings withdrawal limits and how to get around them so you don’t accidentally trigger penalty fees or worse–the closure of your account.
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Why Is There a Savings Withdrawal Limit?
Savings account withdrawal and transaction limits stem from Regulation D, which is a federal regulatory rule that sets standards for how banks and credit unions oversee savings deposits.
One of the main reasons Regulation D exists is to ensure that banks and credit unions have the necessary amount of cash on hand to always cover customer withdrawals.
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.
Banking institutions, however, face a legal requirement to have cash available to service customers. Withdrawal limitations help protect both banks and consumers.
One of the other motivations for Regulation D is to encourage consumers to see their transactional accounts and savings accounts as separate.
A savings account ideally encourages long-term savings, whereas checking accounts enable short-term spending. In some cases, these limitations can help motivate consumers to prioritize saving overspending.
Recent Changes in Savings Account Withdrawal Rules
Because of the financial strain caused by the coronavirus pandemic, the Federal Reserve altered the rules regarding Regulation D in April 2020. The interim final rule currently allows depository institutions the ability to suspend enforcement of the six transfer limit.
This means that financial institutions can allow their customers to make an unlimited amount of convenient withdrawals and transfers from their savings accounts if financial events associated with COVID-19 make more urgent access necessary.
Just because banks aren’t required to follow the six transaction limit anymore, however, doesn’t mean they won’t continue to penalize the account holder for going over that limit.
Many banks still enforce caps on the number of convenient transactions customers can make from their savings accounts.
It can be well worth your while to check in with your financial institution and find out what policies are in place regarding savings withdrawal limits.
Which Transactions Apply to the Cash Withdrawal Limit?
Only “convenient transactions” count towards the monthly withdrawal and transaction limits that consumers face when managing their savings account. But what exactly are convenient transactions?
Regulation D sees these types of transactions as convenient transfers:
• Overdraft transfers
• Automated clearing house (ACH) transfers, such as bill-pay
• Electronic funds transfers (EFTs)
• Transfers made by writing a check to a third party
• Debit card transactions
• Transfers or wire transfers made by phone, fax, computer, or mobile device
Which Transactions Don’t Count Toward the Withdrawal Limit?
While the six transaction limit per month can sound fairly strict, it does not mean account holders can’t access their savings accounts more than six times a month.
Whatever type of savings account you have, there are less-convenient transfers you can make that do not count towards the monthly limit. These include:
• Withdrawals or transfers made in-person at the bank.
• Withdrawals and transfers made at the ATM.
• A withdrawal made by asking the bank to send you a check.
Recommended: ATM Withdrawal Limits
What If I Go Over The Savings Withdrawal Limit?
The penalty for exceeding the cap set by your bank for savings transactions will depend on your institution.
You may be charged a fee, such as a “withdrawal limit fee” or “excessive use fee.” These fees tend to run between $5 and $10 per transaction. Some banks, however, don’t charge fees, and some are temporarily refunding these fees to help customers during the pandemic.
Even if your financial institution charges a low (or no) fee for exceeding the cap on transactions per month, you may still want to watch how many withdrawals or transfers you make.
The reason: If there are excessive withdrawals from a savings account, financial institutions have the right to convert the savings account into a checking account or even close the account.
How to Avoid Hitting Withdrawal Limits
One simple way to avoid overstepping savings account withdrawal limits, is to use your checking account for most of your transactions.
If you think you will need to use your savings account to make more than six (or whatever your bank’s current transaction limit is) in a given month, consider making one substantial transfer from savings to checking at the beginning of the month.
You can then arrange to have your withdrawals or automatic bill payments taken right out of checking.
If you are already at your limit, you can avoid penalties by visiting the bank in person or using the ATM to initiate withdrawals or transfers from your savings account. (You may want to make sure, however, that you’re not triggering any out-of-network ATM charges.)
The Takeaway
If you have a savings account, there is likely a limit to how many withdrawals or transfers you can make each month.
Until April 2020, the savings account withdrawal limit enforced by the Federal Reserve was no more than six “convenient” withdrawals per month.
Currently, banks can choose how many transactions customers can make each month without triggering a fee or having their account closed. Many still enforce the six-per-month rule.
Money transfers you make online, by phone, through bill pay, or by writing a check count towards your limit, while transactions you make in person at the bank or via ATM do not count towards the cap.
You can avoid excess withdrawal fees by making most of your outgoing transfers and withdrawals from your checking account, not your savings account.
Open a SoFi Checking and Savings
Another way to avoid excessive transaction fees–as well as account maintenance fees, monthly fees, and other common fees–is to sign up for SoFi Checking and Savings®.
SoFi Checking and Savings is a checking and savings account that allows you to earn competitive interest, spend, and save all in one place. You’ll pay zero account fees and have access to 55,000+ (fee-free) ATMs worldwide.
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