Savers are being allowed greater access to their money after the Federal Reserve moved to relax the six-withdrawal limit normally imposed on savings deposit accounts.
With many Americans struggling to manage their finances amid the coronavirus outbreak, online banks have been told to allow savers unlimited access to their funds. The aim is to make it easier for people to pay bills online from a savings account, without having to worry about racking up penalty fees or having their account closed.
The law that has been relaxed is known as Regulation D, and restricts savers from making more than six withdrawals or transfers per month from a savings account or money market account. The rule is aimed at making sure banks can maintain their reserve requirements, but the Federal Reserve now feels the needs of struggling citizens should be the priority, acknowledging that “financial events associated with the coronavirus pandemic have made such access more urgent”.
How will removing the six-withdrawal limit on savings help?
It has always been possible to make unlimited withdrawals from a savings deposit account, with ATM withdrawals and in-person withdrawals not counting towards the limits imposed under Regulation D. However, with many Americans under lockdown orders due to the coronavirus, these methods of banking are not as convenient as they normally would be.
Prior to this new change in rules, even a transfer from savings to checking within the same bank counted toward the withdrawal limit. Go over the six withdrawals permitted under Regulation D in a month and savers ran the risk of incurring fees, seeing their account converted to a non-interest bearing account, or potentially seeing their account closed. However, now people will be able to concentrate on how best to juggle their finances instead of keeping track of transfers and worrying about the implications of making too many withdrawals.
Trade groups, including the American Bankers Association and Independent Community Bankers of America (ICBA), had called on the Federal Reserve to suspend the limits, to give savers the widest possible flexibility to access accounts to cover bills and household expenses.
"In a letter to the Fed last month and in follow-up meetings, ICBA and community bankers advocated suspending the Reg D restrictions for at least 12 months due to the COVID-19 emergency,” ICBA President and CEO Rebeca Romero Rainey said in a statement. “ICBA noted that transfers will increase as consumers respond to financial pressures related to COVID-19.”
What savers still need to consider
The additional leeway is sure to be welcomed by savers everywhere, although it should not be seen as a green light to immediately spend your savings, unless you absolutely have to. Recent research found that more than three-quarters of lower-income Americans believe their rainy day funds won’t last three months. Trying to keep checking accounts for transactions and savings accounts and money market accounts from the best online banks for saving should still be a priority, to help you achieve your savings goals.
It is also not mandatory for banks to adopt the new relaxed rules, so you should always contact your bank first before making too many withdrawals. There is also no timescale set on how long the suspension of the Regulation D rules might last, so keeping an eye out for further updates is a must.