Reserve Requirements for Depository Institutions
USINFO | 2013-11-14 13:30

Reserve Requirements for Depository Institutions (Regulation D) is a Federal Reserve Board regulation that limits the number of preauthorized withdrawals and transfers from a savings account or money market account. The regulation applies to all United States banking institutions offering such accounts.
 
In consumer banking, "Regulation D" often refers to §204.2(d)(2) of the regulation, which places a limit of six withdrawals or outgoing transfers per month from savings or money market accounts via several transaction methods. Transactions counted against the limit include "preauthorized or automatic transfer, or telephonic (including data transmission) agreement, order or instruction, or by check, draft, debit card, or similar order made by the depositor and payable to third parties." Transactions not counted
against the limit include "mail, messenger, automated teller machine, or in person or when such withdrawals are made by telephone (via check mailed to the depositor)."

The law was amended in 2009 to allow greater freedom for the depositor: beforehand, the limit was six withdrawals per month if the funds remained within the same institution (e.g., transfer to checking), but was only three drafts where the funds left the institution (e.g., check, ACH, or card based purchase).[1]

The number of deposits or incoming transfers into savings or money market accounts are not limited.

Regulatory aspects
Federal Reserve board Regulation D defines the rules of each account type, and in particular its reserve requirement - the aspect of Law that applies to this 6 transfer limit.

Online access to Bank Accounts has brought with it the very useful at-will ability to make transfers to and from various accounts. However, a Savings Account is classified within the Banking and Regulatory system as a “saving deposit”, and the required reserve requirement for a Bank on a “saving deposit” is 0% of the balance, versus approximately 10% on a “transaction account” such as a Checking Account. The reserve requirement stipulates how much of the account balance a bank is required to keep in reserve, or may not give out in the form of a loan. If a Bank holds $1,000 in a consumer's savings account, it is not required to hold any of that back in reserve and may lend out the entire amount, as the reserve requirement on a savings account is 0%. Whereas on checking accounts (known as transaction accounts), the Bank must retain an amount equivalent to 10% of the balance on hand (in the case of the $1000 figure, then, they must retain and not lend out at least $100 of that amount), with the general understanding that on transaction accounts there will be more frequent drawing of funds and hence the need for a reserve. To maintain the "saving deposit" designation and avoid issues with appropriate reserves requirements, the 6 transfer limit applied to Savings Accounts - imperfect arrangement as it is, and avoidable by merely using an ATM transfer - serves to try to limit the transactions that would otherwise traditionally fall into the category of a "transaction account", as is typical of a Checking Account.
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