November 20, 2020
Note: Financial institutions are required by law under Regulation D to charge account holders who transfer or withdraw funds from a savings account or money market more than six times per month or payment cycle. In April, the Federal Reserve temporarily suspended this rule to allow account holders to access the funds in their savings accounts without restriction due to the effects of COVID-19. Currently, you cannot be penalized for exceeding your institution’s monthly limit, and your bank cannot shut down your account or convert it to a checking account for repeatedly exceeding the limit.
Let’s reminisce for a moment. Your parents gave you your weekly allowance a few weeks ago, but you spent it already. Now you and your friend want to have a lemonade stand, so you ask your parents for more money for supplies. They begrudgingly agree, forking over the amount that you’ll need for supplies, but on one condition: You now have to mow the lawn, an item not typically on your chore list.
Excess activity fees are kind of like that. But instead of your parents, it’s your financial institution. And instead of the $20 that you get for your monthly allowance, it’s a limited number of chances to withdraw or transfer money from your savings account without getting a penalty.
What Is an Excess Activity Fee?
Your financial institution will charge you an excess activity fee — also known as a savings withdrawal fee, withdrawal limit fee, excessive withdrawal fee, or some other variation — if you transfer or withdraw money from your savings account or money market too frequently. Institutions typically allow 3–6 transfers or withdrawals per month.
After you use up those chances, your bank will likely still let you move your money around, but you’ll get charged a fee each time. Kind of like how your parents still lent you the money but required that you also mow the lawn.
The fee amount varies by financial institution but typically runs $5–$15 per transaction over the institution’s monthly limit.
What Counts Toward Your Monthly Allowance?
You can usually transfer or withdraw money from your savings account as often as you need, but the transactions that count toward your allowance of 3–6 each month include:
- Withdrawals, transfers, or payments from a savings account via online or mobile banking within the same institution or to a different institution
- Pre-authorized electronic or written payments, including checks
- ACH or point-of-sale transactions
- Automatic transfers
- Overdraft protection when connected to a savings account
- Wire transfers
What Doesn’t Count Toward Your Allowance?
Fortunately, there are a few ways to get around this monthly allowance.
- Transfers or withdrawals made in person
- Transfers or withdrawals made via ATM
- Transfers or withdrawals made by mail
You can typically go to a branch or in-network ATM and conduct a transfer or withdrawal without it counting toward your monthly allowance. However, there are some institutions, such as Chase, that will still factor these in-person or ATM transactions into the allowance.
Check your financial institution’s website or contact a customer service representative to learn more about their specific excess activity policy.
How Can You Avoid Eating Into Your Monthly Allowance?
Free transactions aside, there are a number of things that you can do proactively to avoid having to transfer or withdraw money from your savings account in the first place. That way you will never have to worry about whether you are nearing your monthly allowance, and you can steer clear of excess activity fees altogether.
Use your savings account for saving, and your checking account for spending.
Avoid directly depositing paychecks or other payments into your savings account because this increases the chance that you will need to transfer or withdraw money from the account. If you’re trying to save money from each paycheck, set up direct deposit into your checking account and enable a percentage or dollar amount of each paycheck to automatically transfer to your savings each pay period.
Consider having two checking accounts.
For those who have trouble budgeting, it can be helpful to set up two checking accounts, in addition to your savings account. Use Checking Account A to direct deposit your paycheck and other payments. You can manually or automatically transfer a certain percentage or amount of your paycheck into Checking Account B to pay for necessities, such as rent, utilities, telephone bill, and other mandatory expenses. You can also manually or automatically transfer a certain percentage or amount from Checking Account A into your savings account. This way, whatever is left in Checking Account A becomes discretionary spending, free to use for luxury items and other nonessential goods and services, and you never have to touch your savings account.
If you opt to open two checking accounts, just remember that your financial institution can then charge account fees on each account — including overdraft, ATM, monthly maintenance fees, and more — so you’ll have to keep an eye on your account balances here as well.
Manage your overdraft protection.
When you opt into overdraft protection, you can link your checking account to another checking account, savings account, line of credit, or elsewhere to cover the transaction in the event that you overdraft your account. If you link your savings account and overdraft, each transfer counts toward your monthly allowance, which can add up quickly if you overdraft several times consecutively.
Rather than linking your savings account, consider connecting another checking account or line of credit for overdraft protection. This will limit how often money could potentially be transferred from your savings account to checking. You might also consider opting out of overdraft protection altogether.
Make transfers and withdrawals in person or at an ATM.
If you do have to transfer or withdraw money from your savings account, try to do it in person at a branch or via ATM since these transactions do not apply to your monthly allowance.
Set up alerts.
Customize your banking alerts to notify you when money is deposited, withdrawn, or when you incur a fee on any of your accounts. This will relieve the stress of having to watch your account balances like a hawk.
Budget, plan, and stick to it.
The best way to proactively manage your bank accounts is to map out your income, necessary and discretionary spending, and savings goals. This will help you understand where all of your income is allocated, whether you need to scale back in some areas, or whether you have leeway to spend or save more.
The key to budgeting, though, is actually putting your budget into action — and sticking to it. A budget is nearly worthless if you are not adhering to it, as well as updating it periodically based on work and lifestyle changes.
By budgeting, planning, and setting up your accounts to automatically deposit money based on your plan, you will minimize the chances that you will need to transfer money from checking to savings, and savings to checking, and instead free yourself up to focus on larger financial goals.
How can Cushion help me?
Cushion Bill Pay gives you more visibility and control over your finances than ever before. Many people get hit with bank fees—such as overdrafts and late fees—due to cash flow problems. With Cushion, you can consolidate and track all of your bills and BNPL payments in one place, plan your budget by reviewing what’s coming down the pike, and avoid overdraft fees by temporarily pausing payments that might overdraft your account and resuming them when you are ready.