Since savings accounts are designed for saving, you’re not supposed to perform a large number of transactions.
If you do, you may get hit with an excess withdrawal fee.
Like with any fee, you’d want to avoid paying it.
Learn which transactions can be considered excess withdrawals and how you can reduce the chances of making them.
What is an Excess Withdrawal?
There is a law, known as Regulation D from the Federal Reserve board, governing certain bank accounts that limit the number of withdrawals on savings accounts and money market accounts to six (6) per month.
An excess withdrawal is a withdrawal from a savings account or money market account that occur after the first six (6) withdrawals made per month.
The rule applies to:
- outgoing fund transfers
- debit card purchase transactions (applies to MMAs)
- overdraft protection transfers
The rule does not apply to:
- cash withdrawals made at the ATM
- transaction initiated in person at a branch
- withdrawals by check (initiated by phone)
Fees for Excess Withdrawals
Banks may charge an excess withdrawal fee for each withdrawal made after the monthly limit.
Typically, an excess withdrawal fee ranges from $10 to $15 each.
Some banks make it more confusing by charging an excess withdrawal fee before the six-per-month limit. However, the fee is usually less than a typical excess withdrawal fee.
For example, the bank could charge $4 after the third (3rd) withdrawal per month. As a result, the fee can act as an alert to the customer that he or she is approaching the standard monthly withdrawal limit.
Consequence of Frequent Excess Withdrawals
To banks, a high volume of monthly withdrawals from a savings account is an indication that the account is not being used as intended: saving.
Rather, such banking activity is usually found with checking accounts, which tend to have higher monthly fees and/or tougher fee-waiver requirements.
Banks don’t want customers to use their savings accounts as checking accounts because the money held in savings accounts is a predictable source of deposits — essential to how banks conduct their business.
Tips on Avoiding Excess Withdrawal Fees
Because excess withdrawal fees are charged per withdrawal, they can add up to be quite expensive.
These are the ways that you can avoid (or, at least, minimize) those fees:
Larger, but fewer transfers
Review the outgoing transfers that coming out of your savings account to see if you can combine them into a single transfer. Cut down on the frequency of transfers by withdrawing more money at one time.
Make a visit to the bank
If you know you’re about to get charged for an excess withdrawal, but you still need to make a transfer, you should head to a branch to initiate the transfer in person.
These transactions made with the assistance of bank staff are not counted toward the monthly withdrawal limit.
Use an online savings account
Many online savings accounts are well-known for market-leading interest rates with no monthly fees.
But, to sweeten the deal, some of them don’t charge excess withdrawal fees at all.
That’s not to say that you can make an unlimited number of withdrawals per month. An online bank can still choose to reject a transfer that violates Regulation D. However, a few of these withdrawals may slip by without any fees occasionally.
Again, don’t abuse this policy because an online bank can convert or close your savings account if you do so.
Keep more money in your checking account
If you find yourself moving money from your savings account to your checking account frequently, simply keep a higher cash balance in your checking account to avoid potential excess withdrawal fees.
This also goes toward eliminating overdraft protection transfers to cover any negative balance in your checking account. Not to mention, overdraft protection transfers have their own fees too.
And, if you opt to have direct deposit into your savings account, consider switching your paycheck to deposit into your checking account instead.
Don’t pay bills from savings account
While you may be able to use your savings account for online bill payments, it isn’t advised. Each of these payments will count as a transfer/withdrawal toward the monthly limit.
Keep these types of transactions for your checking account, which is designed to be your financial hub.
Open an online checking account
If you make multiple transactions through a savings account because you don’t want to deal with the costs of a traditional checking account, consider an online checking account.
Many online checking accounts have no monthly fee with no minimum balance requirements.
This way, you have a real account to handle constant transactions and banking activity — with no monthly limit on transfers and withdrawals.
Excess withdrawal fees can be expensive. But, luckily, they are easily avoidable.
Find out the reason that you’re making frequent withdrawals and transfers from your savings account.
Then, take the above steps to reduce the likelihood of going over the monthly limit enforced by Regulation D.
Simply, make sure that a savings account is being used for its intended purpose: saving.