Q: I recently was charged $3 by Bank of America for “Fee For Checks And/Or Withdrawals Over Limit.” I stash money in my savings accounts with the intention of savings, then often times run out of money before my monthly paycheck, and have to take from savings to cover bills in checking. Why should banks be allowed to penalize a customer for moving money between accounts? Why can’t the Federal Reserve let us move our money around the way we see fit, and force banks to comply with their six-a-month limit?
A: (To offer a little background on Sharon’s question: Bank of America customers with a savings account are subject to a $3 fee for each withdrawal after the third per month.)
For consumer banking, Regulation D places a monthly withdrawal limit of 6 per month on savings accounts.
The rule governs how much the banks must have on reserve in a particular type of account, while the rest can be lent out. For a savings account, the reserve requirement is 0% of the balance. For a checking account, which is likely to have more transaction activity, the reserve requirement is 10% of the balance.
Most banks will charge an “excess withdrawal fee” per withdrawal over the limit, while the first six withdrawals of the month are free. While this pricing model is the industry standard, some banks take different approaches.
Bank of America begins to charge a fee after the 3rd withdrawal as a warning to savings customers. SunTrust takes a similar approach by tacking on a $4 fee after the 2nd withdrawal per month on certain savings accounts.
From a consumer perspective, such fee policy does seem ridiculous when you are just moving your money around. But, there is no rule that says that banks cannot charge a withdrawal fee. Banks could charge for every single withdrawal if they wanted to do so. In fact, some prepaid cards will charge for each bank transfer and ATM withdrawal.
Excess withdrawal fees help discourage savings customers from shifting funds frequently so that banks can maximize the 0% reserve requirement on its lending operations. It’s also part of the reason that savings accounts pay interest on deposits.
Note that the limit applies to outbound electronic, online and phone-initiated transfers. If you want to avoid the excess withdrawal fee, you can withdraw money at the ATM or in person and deposit that money at another bank.
Or, since you’re finding that you frequently have to tap your savings, it would be a better idea to keep a larger balance in your checking account to act as a buffer. You would probably save more money in excess withdrawal fees than you’d earn in interest anyway.