Six withdrawal limit for savings accounts

By glblguy

warning

I wrote about a using a firewall account with ING Direct sometime back. Using a firewall account is a concept I use to insulate my ING savings and ING checking accounts from the outside world. Any income I receive comes to my ING firewall account and then I transfer it to the appropriate ING savings account. My firewall account has a $0 balance 99% of the time or at least it did…

One of my readers made a comment about the six withdrawal limit for savings accounts about how this technique might result in me getting my savings account closed. I responded saying that ING had never said anything and that I frequently made more than six withdrawals a month using this technique. Well, that was until this week when I received the following email:
Date: May 05, 2009

Dear Gibble,
Customer Number: XXXXXXXXXX

Based on recent activity in your Orange Savings Account, we want to remind you that you cannot make more than six withdrawals from your account each month. This is a federal regulation that all banks are required to follow for savings accounts like this one, so if this type of activity occurs more than three times in any 12-month period, we will have to close your account.

Since this is not the first time that you have made too many monthly withdrawals, we will be required to close your account if you do this again – and we don’t want that to happen!

So here’s what you can do to prevent your account from being closed:
# Take a look at your statements or go to ingdirect.com and review your account activity.
# Keep track of how many times you transfer money out of your Orange Savings Account, including transfers to other ING DIRECT Accounts, and make sure you’re not making more than six withdrawals each month.
# Make one or two larger transactions rather than moving money numerous times. This will reduce the number of withdrawals you make each month.

Give us a call at 1-888-464-0727 if you have any questions.

Opps! Looks like the ING withdrawal police caught me!

Why the six withdrawals limit on for savings accounts?

ING is mandated by the federal reserve to allow no more than 6 withdrawal transactions in one month per savings account. Seems they let me by for a while, but finally had to warn me.

This 6 withdrawal limitation is part of the Federal Reserve’s Regulation D requirements, commonly called “Reg D”. Reg D was enacted as part of the Securities Act of 1933 in the aftermath of the 1929 stock market crash and was part of the New Deal

Why the limit? Reg D focuses on the correct calculation of reserves. In order t properly calculate reserves, they must be classified the correct way. In order for a savings account to be a savings account, it must have less than 6 withdrawals (or transfers) within a one month period. If a customer fails to abide by this limitation on more than an occasional basis, the account can no longer be classified as savings account under Reg D.

Avoid getting your savings account closed

I would rather not have my savings account closed, so I called ING to see if they would really do it. The bottom line? They sure will. They have to. ING savings accounts are automatically closed on the third violation of the requirement. I have multiple savings accounts with ING (currently I have 7). I was assured that only the account in violation of the requirement would be closed and that the others would remain open. Still though, for my firewall account this was a problem.

I know this seems obvious, but the only real solution, at least for my firewall account is to make less transfers. So instead of transferring money right away, I’ve now added a reminder on my Google Calendar to transfer any money from that week on Friday. That way I won’t exceed the limitation, but still minimize my risk.

Another trick you can use for accounts not linked to outside accounts (like my firewall account is) is to just create a new savings account. So if you have a savings account like I do called “kids’ allowance” that you frequently transfer money out of (when I pay them), when you hit 6 withdrawals within a month’s time, just create another account and name i “kid’s allowance 2″. You can then alternate back and forth across two or more accounts and avoid the limitation. Yes it’s a bit of a pain, but it’s a solution. ING did confirm this would work, although they didn’t recommend it as a solution.

Have any of you had this problem? How did you deal with it? Add a comment!

Photo by: superstrikertwo


20 Responses (including trackbacks) to “Six withdrawal limit for savings accounts”

  1. CindyS Says:

    Randy and I were having a similar discussion this week. I am going to open a savings account at a local bank and he thinks that they have a small charge for withdrawing money. I think that like your Ing account, the limitation is in the number of withdrawals you can make per month. Either way, it should not be a problem as I hope that I won’t have to withdraw frequently.

  2. Lynn Says:

    I actually use my ING checking as my firewall acct because it doesn’t matter how many transactions come out. Plus the money is available in 2 days and not 7. It has worked really well for me but it is also not my main checking account. It might get more complicated if it was.

  3. Daniel Says:

    I ran into the same issue, so I switched this account to a checking account. Problem solved no need to worry about transactions. Also for this type of account I felt the interest was negligible.

    Actually I’ve created a checking account for all of my “envelopes” to partition my money. I have something in the range of 20+ checking accounts. This has helped tremendously and made my families life easy.

    Best example was creating a checking account primarily for gas, we went from budgeting $450 a month to $240. It’s amazing how a coke here and snack there added so much money we didn’t realize we were spending.

  4. Wojciech @ Fiscal Fizzle Says:

    I was also going to suggest using a checking account as the firewall, but looks like a couple of people beat me to it!

    I had the same issue with my own money market account, which if I remember had a more stringent restriction – 3 transfers per month. I really had to be careful to avoid going over!

  5. PK Says:

    Although this doesn’t matter for an ING savings account, keep in mind that the 6 withdrawal limit only applies to electronic based transactions (online transfers, atm transfers, phone transfers, ETFs, and ACH payments) against your savings account. If you have an account at a brick and mortar bank you can make as many paper based withdrawals and transfers as you want, but you have to physically go into the bank and have a teller run the transaction.

  6. Baker @ ManVsDebt Says:

    Haha, very interesting. I’ve not ever had this be a problem, however this is something I need to look out for more in the coming months when we move overseas.

    I can’t understand why ING won’t let you have multiple checking accounts. Anyone know the reasoning behind this?

  7. ChristianPF Says:

    For what it’s worth the 6 w/d limit applies to all MMKT accounts at all banks, some of them are just a bit more diligent in how and when they punish the customers for it – But ultimately the bank will get fined for doing this…

    as far as getting around the 6 w/d limit at ING, I wrote a post about it a while back… http://www.christianpf.com/ing-hack-to-get-around-the-six-wd-limit/

  8. Paul Says:

    Just a point of clarification. There are least two distinct Regulation Ds.

    1 – Regulation D promulgated under the Securities Act of 1933 was adopted in 1982 addresses the certain exemptions from the registration requirements imposed by Section 5 of the Securiites Act. It is not a banking regulation (it applies to issuers in all industries).

    2 – Regulation D promulgated under the Federal Reserve Act (which is the one you’re discussing) relates to reserves financial institutions are required to maintain.

  9. Craig Says:

    What is the reason for that regulation?

  10. glblguy Says:

    I researched and researched on that same questions and couldn’t find a clear answer. Hopefully somebody else might know.

  11. Amy Says:

    My credit union has it set up online to where it tells me how many I have made and how many are still available. If I try to exceed the limit, it just doesn’t work. The money stays in the savings account.

  12. Paul Says:

    I’m not a bank regulatory expert, but I’d speculate the limitation is driven by the reserve requirements (i.e. I’d guess accounts with unlimited withdrawal rights have higher reserve requirements).

  13. Stew Says:

    I have almost had my FNBO Direct Savings account shut down for the same reason – and I was transferring money internally to the FNBO Direct billpay!

    I think that Paul is on the right track and I think that it also has something to do with interest accrual and the average daily balance. The reason that banks offer a higher interest rate on CD’s is because they know that the money is locked in for a set period of time. They also need to make assumptions about savings account balances.

  14. Funny about Money Says:

    Interesting. I knew there was a limit on the number of withdrawals you can make from a money market account, but never realized there was any such restriction on savings accounts. Luckily, I’m so cheap that deposits to savings go into a black hole, never to come out!

  15. MyJourney Says:

    GLBL,

    Why not just make the ING checking account your firewall account? The only difference is the interest rate, but at today’s rates and considering you “keep it at $0 99% of the time” you are probably only losing 30 to 80cents post tax per year.

    Some reasons I could think of all have to do with the time it was enacted:
    1) People tell me ATMs weren’t always around (and weren’t popular until mid to late 90′s). I say people tell me, because I was born in 81 and just always remember atms. So banks probably wanted to limit the wasting of teller’s time.

    2) Computers didn’t keep track of the score, so it would be easier to withdraw money in multiple banks without reconcilation on their part.

    Just some thoughts

  16. glblguy Says:

    @MyJourney – Good question. My Checking account is my emergency fund which has at least $1000.00 in it all the time. I don’t want that money being available to any of the service companies connected to my firewall account.

  17. DDFD at DivorcedDadFrugalDad.com Says:

    Thanks for reminding me about this! I had forgotten about this aspect of savings accounts.

    Another reason I am a firm believer in multiple bank accounts . . .

  18. stephen Says:

    I’ve just had the issue with my bank, they told me that the act was from 2009 and that it just didn’t ceitch up with me untill now. My question is how many tranaction am i allowed with in what time frame? They told me it was 6 within a 3 month cycle. Sucks because my I have several direct withdrawls out of my savings account and this is the first i’ve seen any word of this. I Almost closed my accounts and started keeping my own money.

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