Federal Reserve removes 6-withdrawal limit on savings accounts

The Federal Reserve announced on Friday, April 24, 2020, an interim final rule to amend Regulation D to delete the six-per-month limit; this change will allow customers an unlimited number of convenient transfers and withdrawals from their savings deposit accounts. This regulation was amended in light of the coronavirus pandemic which has brought about a financial crisis. This interim amendment will allow customers easier access to their funds so they can transfer money, pay bills or make withdrawals without having to worry about keeping track of the number of transfers. Before this interim final rule, for example, a transfer from the customer’s savings to checking account counted as a transaction toward the six-per-month limit.

Regulation D (12 C.F.R. 204) is a Fed rule that does not allow more than six certain types of withdrawals and transfers from a savings or money market account each statement cycle. This rule was enacted to help financial institutions to maintain reserve requirements. The withdrawal limit was established during the Great Depression of the 1930s to help improve bank stability.

The Fed announced on Sunday, March 15, 2020, that the ready reserve requirement ratio will be zero percent as of Thursday, March 26, 2020. The reserve requirement ratio was set to zero for transaction accounts as reserve requirement ratios on nonpersonal time deposits and euro liabilities; these have not been set to zero since 1990. Before this announcement, there were two requirement ratios depending on the depository institution’s “low reserve tranche,” the net transaction account balances above the reserve requirement exemption amount. If a depository institution was above the reserve requirement exemption up to a specified amount, the institution would have a reserve requirement ratio of 3%. If a depository institution net transaction account balances were above the low reserve tranche, the institution would have a reserve requirement ratio of 10%. The Fed reduced the ready reserve requirement to zero to free up liquidity in the banking system to support lending to households and businesses during the coronavirus pandemic. The Fed stated, “Currently the Board has no plans to re-impose reserve requirements. However, the Board may adjust reserve requirement ratios in the future if conditions warrant.”

Important takeaways about this Regulation D amendment:

• The amendment of Regulation D was called an “interim final rule” by the Fed and the regulation was amended due to the coronavirus pandemic. There is no clarification surrounding the amendment as to if it is temporary or not. This was not addressed in the press release or on the Fed’s frequently asked questions (FAQ) webpage.
• The interim final rule permits but does not require deposit institutions to immediately suspend the enforcement of the six transfer limit to allow their customers to make an unlimited number of convenient transfers and withdrawal from their savings.
• A depository institution may now report “savings deposit” accounts as a “transaction account” if the depository institution suspends enforcement of the six transfer limit or if it chooses, it can continue to report the account as a “savings deposit” account.
• A depository institution does not have to modify the method by which it reports or calculates interest on an account where the deposit institution has suspended enforcement of the six transfer limit.
• Due to the interim final rule, customers will now be able to use their savings or money market accounts to make regular payments. Customers might use this opportunity to put all their funds in their savings accounts to conduct all transactions while earning a higher interest rate than in their checking accounts.
• Due to the interim final rule, there may be a rise in money market accounts, which fall under Regulation D, as some allow customers to write checks and usually they offer higher annual percentage yields than standard checking accounts.

Related resources

• Read the Fed’s press release
• Read the Fed's anticipated questions regarding the interim final rule
• Get more information on Fed requirements

This article will be updated as more information is released regarding Regulation D and the interim final rule. Clients will want to closely study the effects the interim final rule may have on their financial institution and customers.

Works cited

Federal Reserve Board: “Reserve Requirements" Board of Governors of the Federal Reserve System, 15 Mar. 2020.

Federal Reserve Board. “Federal Reserve Board Announces Interim Final Rule to Delete the Six-per-Month Limit on Convenient Transfers from the ‘Savings Deposit’ Definition in Regulation D” Board of Governors of the Federal Reserve System, 24 Apr. 2020.