Four hacks to Reg D
If only more people had six on their minds. Our finances would be in far better shape.
If you’ve ever set up your savings or money market accounts as automatic overdraft protection of your checking account, then you may have been surprised by a fine for excessive “remote” transfers, sometimes called ACH or convenience transfers.
That’s because federal banking laws limit the number of so-called remote withdrawals or transfers to six per month from your savings or money market accounts. Once you reach the limit, your bank may block access to the account, fine you for each transaction above the limit, or close the account.
Fines range from $1 to $20 across the Pacific Northwest, says Alisha Birchall, deposit operations manager for STCU, a Spokane-based credit union.
“Compared to a $30 overdraft charge, your $5 remote transaction fee may seem insignificant,” Birchall says. “But we’ve known people who have committed 47 Reg D violations in one month when they weren’t paying attention. That adds up.”
Reg D is short for Regulation D, a Federal Reserve rule to help stabilize the U.S. banking system. The law discourages you from using your savings — which is supposed to be a stable source of funds — as a checking account, where money can be instantly withdrawn using your mobile app or computer.
A “remote transaction” is defined as just about anything done when you are not physically present at the bank, including:
- Paying a bill electronically.
- Transferring money online, even if it’s between your own accounts.
- Calling the bank or credit union to transfer funds.
- Making an automated telephone banking transfer.
- Writing a paper check.
- A preauthorized automatic payment.
- An automatic transfer to cover an overdraft on another account.
There is no limit, however, to the number of transactions you can do in person from your savings or money market accounts. Visit a branch location, use an ATM, or drop a deposit in the bank’s Night Drop. Send in a deposit by mail or preauthorize automatic loan payments. All are exempt from Reg D limits and fines.
Reg D has no effect on everyday checking account transactions ─ debit card purchases, electronic bill payments, online or mobile banking transfers, or issuing a paper check.
Try one or more of the following four solutions to avoid Reg D restrictions and fines:
- Transfer funds from an ATM. It doesn’t matter if the ATM is in Atlantic City, Kansas City, or Seattle. Because you are present at the machine, your transfers or cash withdrawals from savings or money market accounts do not count toward Reg D.
- Use a shared branch location. If you belong to a credit union that participates in shared branching, you can avoid Reg D limits by visiting a participating branch location in any community. Present your account number and identification to the teller, as if you were at your own credit union. The teller will help you transfer funds or withdrawal cash without restriction.
- Open a second checking account for overdrafts. Because there’s no limit on checking account transactions, opening a second account as your overdraft protection fund could keep you from triggering Reg D or overdraft fines.
- Pay with cash or a credit card. When money in your wallet runs out, you can either stop buying stuff or switch to paying with a credit card. That gives you a few weeks to pay off the card balance before interest is assessed.
If you’ve already run up a pile of Reg D fines, Birchall recommends contacting your financial institution immediately to ask if fees could be reversed in exchange for either closing your savings account or removing any automatic payment or transfer services from the account.
In addition, Birchall suggests changing your banking habits to proactively avoid Reg D violations:
- Make larger, but less frequent, transfers from your savings to checking accounts.
- Check your checking account balance frequently. If it’s sinking toward $0, quickly move money to the account, preferably at the nearest ATM or branch location.
- Ask your financial institution if it can provide you with an electronic warning when you are about to exceed your Reg D limit.
Your Reg D limit on remote transactions is reset each month, so eventually you can make more transactions without penalty from your phone, computer, mobile app, or checkbook. Just don’t keep violating the limit, as three consecutive months of violations may result in further action by your bank or credit union.
So, go ahead and enjoy six remote transactions each month. Just do it responsibly.