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When transferring funds between my savings account and my checking account, there is always a little help text about "Regulation D".

Essentially it says that due to federal limits if I exceed 6 transfers in a billing period, that the transfer would be declined, I may face fees and the savings account may be converted to a checking account.

But when I look up Regulation D, I basically get the same information.

Why does Regulation D exist, and what is it protecting who from?

I can't see any harm in doing 10 transfers from my savings account to checking (except that I suck at savings), and there doesn't seem to be any harm to the bank either. In fact you would think that they would love it (Less interest payout).

All I can find when looking up is the same general warning.

  • "In fact you would think that they would love it (Less interest payout)." – Know what pays even less interest? The savings account it gets converted to. – Kevin Jan 16 '17 at 9:49
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Regulation D helps regulate the amount of money a financial institution has on hand at any particular time. Savings accounts are not factored into that. Because of that, there has to be a limit on how many withdrawals can occur in order to keep proper classification on the number of transactions.

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    But how would 10, $100 transactions be better then a a single $1000 transaction? – coteyr Jan 15 '17 at 15:11
  • Or 10 transactions made in person? – coteyr Jan 15 '17 at 15:12
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    @coteyr That is a great question! I just called my bank and one I don't bank with. They could not tell me why it is set to 6 and why ATM withdrawals don't apply or in person. I assume it could be to prevent wire fraud. If you stand by, I will find out for you! I am now curious myself, I've never questioned it. – Michael Jan 15 '17 at 15:32
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    @coteyr I called 2 more banks (Wells Fargo and US Bank) and same thing, no one could tell me why! However, I did find this article (quora.com/…) and it apparently is legacy regulation from back in the 1920s. The limit also minimizes fees banks pay when someone makes a transaction. I hope that helps. I think this is a silly regulation and/or banks need to educate their employees. 4 major banks and no one knew! – Michael Jan 15 '17 at 15:44
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    @MichaelC., It is erroneous to believe that the people working at the customer service level of any particular bank will know the reasons behind regulations. In my experience, they often don't even know the details of the actual regulations, let alone the reasons for the regulations. – Makyen Jan 15 '17 at 20:47
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Let's divide all bank accounts into savings and checking.

The main difference is that checking is easy to get money from; savings is hard to get money from. Because of this, the federal Reserve requires that banks keep more money on hand to cover transactions in checking accounts.

Here is a related question from a banking customer regarding a recent notice on their bank statement: Deposit Reclassification. It seems that the bank was moving the customer's money between hidden sub accounts to make it look like the checking account was really a savings account and thus "reduce the amount of funds we are required to keep on deposit at the Federal Reserve Bank." If they didn't have to transfer the money many times the bank could keep less cash on hand. But once they did 5 hidden transactions the rest of the money in the hidden savings account would be moved by the bank.

The 6 transaction limit is done to not allow you to treat savings like checking.

Here is a relevant quote from the Federal Reserve

Savings Deposits

Savings deposits generally have no specified maturity period. They may be interest-bearing, with interest computed or paid daily, weekly, quarterly, or on any other basis. The two most significant features of savings deposits are the ‘‘reservation of right’’ requirement and the restrictions on the number of ‘‘convenient’’ transfers or withdrawals that may be made per month (or per statement cycle of at least four weeks) from the account. In order to classify an account as a ‘‘savings deposit,’’ the institution must in its account agreement with the customer reserve the right at any time to require seven days’ advance written notice of an intended withdrawal. In practice, this right is never exercised, but the institution must nevertheless reserve that right in the account agreement. In addition, for an account to be classified as a ‘‘savings deposit,’’ the depositor may make no more than six ‘‘convenient’’ transfers or withdrawals per month from the account. ‘‘Convenient’’ transfers and withdrawals, for purposes of this limit, include preauthorized, automatic transfers (including but not limited to transfers from the savings deposit for overdraft protection or for direct bill payments) and transfers and withdrawals initiated by telephone, facsimile, or computer, and transfers made by check, debit card, or other similar order made by the depositor and payable to third parties. Other, less-convenient types of transfers, such as withdrawals or transfers made in person at the bank, by mail, or by using an ATM, do not count toward the six-per-month limit and do not affect the account’s status as a savings account. Also, a withdrawal request initiated by telephone does not count toward the transfer limit when the withdrawal is disbursed via check mailed to the depositor.

Examiners should be particularly wary of a bank’s practices for handling telephone transfers. As noted, an unlimited number of telephone-initiated withdrawals are allowed so long as a check for the withdrawn funds is mailed to the depositor. Otherwise, the limit is six telephone transfers per month. The limit applies to telephonic transfers to move savings deposit funds to another type of deposit account and to make payments to third parties.

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    This helps explain it a little. But If I go to the bank 100 times this month and get $10,000 that's "fine". But going to the website and transferring "$10,000" 1000 times is not.Why does one type of transaction need a special limit, while the other is explicitly excluded from the rule? – coteyr Jan 17 '17 at 16:00
  • And, in both cases asking for a large sum of money would result in "Umm, not right now come back after we can make some arrangements". – coteyr Jan 17 '17 at 16:03
  • The key is the phrase ‘‘convenient’’. If it is trivial to move the funds and the number of moves is unlimited, then the account is a checking account no matter what label is on the account. If it is hard to move the funds or the number of moves is limited it is a savings account. Those two types of funds have different reserve rules. – mhoran_psprep Jan 18 '17 at 11:38
  • I don't see how it's any less convenient to execute 10 transfers online than it is when I go to the bank in person. You haven't explained why the 10 in person transfers are allowed, but 10 "online" ones are not. – iheanyi Nov 11 '17 at 0:33
  • My question is; why bother with this dual requirement? Why not just make cash reserves slightly higher on all accounts and thus eliminate this dual reporting garbage? – zeusalmighty Oct 30 at 13:01

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