November 20, 2020
When you opened your bank account, you likely didn’t expect to find yourself in the middle of the Goldilocks and the Three Bears fairytale. No, there’s no porridge in this scenario, nor uncomfortable chairs or upset bears. However, when it comes to your bank account, you can’t use it too much, you can’t use it too little. You have to use it just the right amount. Otherwise, you’ll find yourself with an excess activity fee or an inactivity fee, and no one — not even a mama bear or papa bear — finds that appealing.
Excess Activity Fee
Much as it sounds, 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. The magic number is typically six times per month, but some institutions will charge the fee after only three.
Banks have not enacted this all on their own, believe it or not. Under Regulation D, the Federal Reserve limits the number of times an account holder can transfer or withdraw money to six times per month. If the account holder exceeds this amount, your institution is legally required to charge you a fee.
Why do banks charge excess activity fees?
A savings account is designed to do just that — help you save money. Your financial institution prefers that you deposit money into your savings account and leave it there to accrue interest. If you start moving it around too often, they will penalize you for it.
Of course things happen and unexpected expenses arise, but that is why banks will allow you to make transfers or withdrawals up to six times per month. Any more and you can bet you’ll receive a fee.
How much is an excess activity fee?
The fee varies by institution, but major banks typically charge $5–$15 for each transaction over their limit. If your bank allows you to make six transfers or withdrawals each month and you make nine, you will get a fee for the seventh, eighth, and ninth transactions.
What happens if you get too many excess activity fees?
If you repeatedly exceed six transfers or withdrawals each month, your bank has the right to close your account or convert it to a checking account. If your bank converts your account, you will unfortunately no longer accrue interest on the balance, as a typical savings account would.
In April 2020, the Federal Reserve temporarily suspended the limitation on the number of transfers and withdrawals due to consumers’ needs to access funds amidst the coronavirus pandemic. Currently, you cannot be penalized for exceeding your institution’s limit, and your bank cannot shut down your account or convert it to a checking account for repeatedly exceeding the limit.
On the other hand, when you don’t conduct any transactions on your checking or savings account — be it deposits or withdrawals — for an extended period of time, you may incur an inactivity fee. These fees are sometimes referred to as dormancy fees, and, depending on your institution’s policy, could go into effect as quickly as a few months of inactivity.
How much is an inactivity fee?
Not all financial institutions charge inactivity fees. For the ones that do, inactivity fees typically run $5–$15 each month that the account remains inactive. If your bank begins charging inactivity fees after one year of no action, you can expect to receive a fee on the eleventh month, twelfth, thirteenth, and so on until you reactivate your account.
To reactivate your account, you’ll have to make a deposit, withdrawal, or contact your institution to find out if they have other options.
What happens if you get too many inactivity fees?
Your institution will attempt to contact you. However, if your account remains inactive for a considerable amount of time, the institution could charge you an additional escheatment fee before transferring the remaining account balance to the state. At this point, it may be more difficult to retrieve the funds, but certainly not impossible.
The Bottom Line
The moral of the story is that your financial institution wants to provide a safe place for your money, but not without a little work on your end. Once you’ve opened an account, it will take a little budgeting, planning, and sticking to that budget and plan to ensure you are not excessively withdrawing or transferring from one account to another, or conversely, that your account doesn’t go dark.
With a little planning, you will show your financial institution that you’re an asset to have as a customer. There may come a time when you need a favor from your bank, such as waiving an overdraft fee or finding relief options amidst the COVID-19 pandemic. Illustrating healthy banking habits will encourage the representative to lend a hand or meet you halfway, whatever your request may be.
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.