Updated: Sep 04, 2023

How to Avoid Savings Withdrawal Fees

MyBankTracker explains why savings withdrawal fees happen and how to avoid incurring them.
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Question: 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 oftentimes 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?

- Sharon

Answer: (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.)

What is Excess Withdrawal Fee

For consumer banking, the former Regulation D places a monthly withdrawal limit of 6 per month on savings accounts.

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The rule governed 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 charged an “excess withdrawal fee” per withdrawal over the limit, while the first six withdrawals of the month are free. While this pricing model was the industry standard, some banks took different approaches.

Bank of America begins to charge a fee after the 3rd withdrawal as a warning to savings customers. Truist 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 outbound electronic, online and phone-initiated transfers are classified as withdrawals

How to Avoid Fee

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.

How to Avoid Fees With Multiple Savings Accounts

One way to avoid the excess withdrawal fee is to open multiple savings accounts at the same bank. Since the federal limit applies to each individual account, having multiple accounts will allow you to have more withdrawals without reaching the limit.

Online banks such as Ally Bank and Capital One 360 are known for allowing customers to open more than one savings account. Additionally, many online banks do not charge monthly service fees on their savings accounts.

Here are the most popular online savings accounts:

Because many major banks have monthly fees (and certain requirements to waive these fees) on their savings accounts, it may not be viable to open multiple savings accounts at these banks without incurring fees.

Instead of taking the risk of racking up excess withdrawal fees in hopes that more money will stay in savings, consider a rewards checking account.

Many rewards checking accounts will pay a decent interest rate under the condition that certain requirements are met.

This way, you can make as many transactions as you want while your deposits continue to earn interest.