In recent years, it’s become increasingly difficult to tell the differences between savings and checking accounts. Many banks now offer savings accounts that allow some sort of check writing, online bill pay, and debit card use, features historically only available with checking accounts. Meanwhile, many checking accounts now pay interest, a perk historically only associated with savings accounts.
Despite these similarities, there is still one main difference that separates checking and savings accounts - a wonky government restriction known as Regulation D.
Regulation D states that savings accounts cannot allow more than six transfers or withdrawals per month, such as checks, debit purchases, bill pays, and online ACH transfers. Strangely, ATM and in-person withdrawals do not count towards this limit.
Meanwhile, checking accounts don’t have government regulations on the number of transfers and withdrawals – so typically these accounts allow unlimited check writing, debit purchases, bill payments, etc. Thus, to decide between whether you need a savings account or a checking account, your first question should really be how often you plan to withdraw money from it.
Below are some commonly asked questions related to savings accounts and Regulation D:
Banks enforce the six withdrawal limit of Regulation D in a variety of ways. Some may charge you a fee if you make more than six transactions per month. Others will automatically convert your savings account to a checking account, and in some cases stop paying you interest on your money at that moment. Finally, some banks have systems in place to simply deny that seventh transaction from happening.
Most money market accounts are simply savings accounts with a different name and thus prevent more than six withdrawals or transfers per month. However, occasionally a bank will have an ambiguous account name such as “money market checking” in which case you should check with the bank to see whether it’s covered by Regulation D. In general though, the term “money market” is just a marketing term such as “deluxe” – for more information about the confusion around these accounts, read our post on false assumptions about money market accounts.
Until recently, Regulation D not only limited savings accounts to six withdrawals/transfers per month, but also restricted certain types of transactions (like check writing) to three per month. The regulation was updated on July 1, 2009 to no longer have this three-transaction-per-month restriction, but many banks have yet to update their systems, processes and websites so they still enforce the old methods. Hopefully banks will complete their transitions soon, but if the three versus six transaction limit matters to you, it makes sense to ask your bank whether they’re still working under the old rules.
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