Owners of savings accounts might have wondered at one time or another, “What is Regulation D?” The simple answer: It’s a law created by the Federal Reserve that affects banking regulations. Although the name Regulation D might not be familiar, you have experienced the effects of this law if you’ve ever had a savings or money market transfer blocked by your bank. The law limits the number of electronic — not in-branch — transactions one can make with an interest-bearing account in a depository institution.
It’s important to be aware of Regulation D and the ways it can impact you. It’s a law that has a deep effect on your transactions, account and financial well-being. Here are seven things you should know about Regulation D:
1. When Did Federal Regulation D Go Into Effect?
The law took effect on Aug. 1, 2008. It is important not to confuse the Fed Regulation D with the Securities and Exchange Commission — SEC — Regulation D, which deals with private placement, form D, and the Securities Act of 1933. Learn more about the Fed Reg D, which affects non-transaction banking accounts.
2. Does Regulation D Apply to All Banks and Credit Unions?
The regulation applies to all depository institutions, big banks or small credit unions, no matter if the bank falls under Federal Reserve Board regulations or FDIC regulations. It also applies to all consumers — even accredited investors. The purpose of this regulation is to ensure the financial institution has the appropriate level of reserves and to keep savings accounts from being used in the same manner as checking accounts.
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3. How Does Regulation D Affect Withdrawal Account Limits?
You can make unlimited deposits to your savings account, but you can only make six total electronic transactions or withdrawals each month. The Greater Niles Community Credit Union recommends keeping any funds you plan to spend in a checking account so you can avoid having to deal with transactions limitations. Checking accounts are not subject to Regulation D and have no savings or withdrawal account limits.
4. What Type of Accounts Are Impacted by Reg D?
All interest-bearing accounts, such as regular savings accounts, are impacted by Regulation D and are limited to six transactions per month. Money market accounts and certificates have the same characteristics as savings accounts and are also subject to the same banking regulations.
You might prefer to keep a large portion of your money in interest-bearing accounts, which leaves you the option of having more than one savings account so that each account will be allowed up to six transactions.
5. What Happens If Someone Exceeds the Reg D Limits?
Each bank handles it differently, but the more you exceed the limit, the more serious the consequences become. For a first-time offense, the bank might simply charge you a fee or refuse to process the request. Repeat offenders risk losing their savings account and funds will have to be transferred to a transaction account, such as a checking account.
You should be especially careful not to exceed the transfer limit with money market accounts, given the potential losses you could incur for it. Typically, money market accounts have higher interest rates than normal savings accounts. Having to pay fines for exceeding the withdrawal limit can cause you to lose more money from a money market account.
6. What Counts Toward Your Allotted 6 Transactions?
Transactions deemed “convenient” count toward this total. Convenient transactions include:
- Pre-authorized transactions or scheduled withdrawals
- Transactions by phone or fax
- Online and mobile banking transactions
- Transactions by debit card or check
- Automatic overdraft transactions
- Other transactions that are payable to a third party
Transactions that aren’t completed electronically don’t count toward the six you are allotted for each transfer cycle. Transactions made in person, by mail or at an ATM don’t count toward your total. Additionally, transfers for loan payments won’t incur any consequences, as long as the same owner is moving the money from the savings to pay the loan, and both the savings and loan are with the same company.
7. How Can You Get Unlimited Transactions With a NOW Account?
Negotiable order of withdrawal accounts — also known as NOW accounts — allow an unlimited number of transactions without penalty. NOW accounts aren’t completely different from savings accounts, however. As with savings accounts, the bank where your NOW account is registered reserves the right to demand seven days’ prior written notice for each transaction you intend to make.
Unlike a savings account, a NOW account isn’t available to for-profit businesses. NOW accounts also have no maturity date. It’s not perfect, but a NOW account is a great option for somebody who needs to make more than six convenient transactions each statement cycle.
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Michael McDonald contributed to the reporting for this article.