In the early days of the pandemic, the Federal Reserve temporarily axed a requirement that had limited the ability of depositors to make transfers and withdrawals from savings and money market accounts.
At the time, the nation was largely in lockdown, so consumers were having a hard time conducting in-branch transactions, which were exempt from the preexisting rules.
One year later, the Fed has declared that the changes are permanent, though some additional tweaks may still be made — an example of a crisis prompting long-lasting change.
The changes give banks freer rein to make their own decisions about the terms of their savings accounts. And while some banks have not budged, others have dropped a six-transaction limit that was required under the old rule.
“We just thought of it as an accommodation: How could we help customers while the pandemic is happening, and they can’t necessarily get out?” said William Calderara, president and CEO of Ulster Savings Bank in Kingston, New York, which received the Fed’s approval to waive the monthly transaction limit a few weeks before the temporary rule change was announced.
But Calderara’s thinking has evolved as the U.S. economy has returned to greater normalcy. His $1.3 billion-asset mutual savings bank does not plan to reinstate the six-transaction limit. “Why are we doing this temporarily, and does this rule still make sense?” he asked.
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Under the old rules, remote transactions, such as those made online, were limited to six per month, though in-branch, ATM and telephone transactions were excluded from the limit.
The change — effective on April 24, 2020 — was an amendment to Regulation D, the federal rule that requires banks and credit unions to keep a certain amount of reserves on hand to satisfy withdrawal requests. It was announced a month after reserve requirement ratios were reduced to zero, a change to the Fed’s monetary policy that had undercut the rationale for the old limits.
A Fed spokeswoman said recently that the rule is considered final. On its website, the central bank states that its board of governors “does not have plans to re-impose transfer limits,” although there may be “adjustments to the definition of savings accounts” based on comments received about the interim final rule.
Banks’ responses to the relaxed rule have been a mixed bag, in part because the banks were not obligated to make any changes and, at least in some cases, because of confusion about whether the amendment is final. While some banks discontinued the cap of six transactions per month, either temporarily or permanently, others made no changes at all.
U.S. Bancorp eliminated the transaction cap, as did Wells Fargo, which also stopped charging customers $15 fees for exceeding it.
PNC Financial Services Group also discontinued the cap, but only on a temporary basis. The Pittsburgh-based company plans to reinstate the six-transactions-per-month limit by June, but will reduce fees from $15 per excess withdrawal to $3, a spokeswoman said.
Citigroup eliminated its monthly cap on transfers from savings and money market accounts in mid-April. The company did not previously charge fees for exceeding the limit, a spokesman said.
Two online banks are taking different approaches. Ally Bank is temporarily refunding its $10 excessive-transaction fee and will keep doing so “for the foreseeable future,” a spokesman said.
Meanwhile, American Express National Bank, the digital banking arm of American Express, increased its monthly transaction limit on high-yield savings accounts from six to nine.
JPMorgan Chase and Bank of America, the two largest U.S. banks by assets, have made no changes to their savings account terms.
JPMorgan charges $5 for every withdrawal or transfer from a savings account beyond six per month, and all withdrawals or transfers — including those made at a branch or ATM — count toward the six.
BofA charges $10 for every withdrawal above six, but charges no more than six such fees per month. Customers with $20,000 in the account are excluded.
At smaller banks, it is unclear how widespread the changes have been. Neither the American Bankers Association nor the Independent Community Bankers of America have surveyed their members, which have spent much of the past year making emergency loans to small businesses, navigating remote work challenges and grappling with a low interest rate environment.
Even though the change is now considered permanent, it could take awhile for banks to align their policies with the new guidance, according to Ken Tumin, founder and editor of DepositAccounts.com, a bank account comparison website that tracks interest rates and account fees.
Because banks are not required to change their terms, lifting the monthly limit is a low priority, Tumin said. Some banks may hesitate to make changes because they do not want their customers to treat savings accounts like checking accounts, which generally cost more because they get used for more transactions, he said.
The ABA raised this issue in a June 2020 letter to the Fed. The industry group said that it supported the removal of the six-transfer limit, but worried about the possibility of “significant blurring of the distinctions” between savings and checking accounts.
In a statement last week, an ABA spokesman said that the change last year “gives more flexibility for designing savings accounts, but creates some gray areas for banks in how they differentiate certain deposits for regulatory reporting and supervisory and legal purposes.”
“We encourage the Fed to provide banks additional clarity,” the spokesman added.
There may be other reasons why some banks haven’t dropped the six-transaction limit. Most banks have more deposits than they can put to work, thanks to a savings glut and a surge in pandemic relief aid, so they have little reason to make changes designed to lure more depositors.
At the same time, customers are not exactly clamoring for savings accounts when interest rates are so low, said Chris Cole, executive vice president and senior regulatory counsel of the Independent Community Bankers of America.
“Between those two economic conditions, it just hasn’t been a good test of whether banks would take advantage of the changes or not,” Cole said.
“So we’re going to have to wait until we get to a more normal interest rate environment and a more normal loans-to-deposits environment — when loans pick up and deposits become more attractive — to see if banks will take advantage of these changes.”
