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Excessive transaction fees are penalties incurred by consumers when they make too many withdrawals from a savings account or money market account in a single month.

These fees were once mandated by federal law (Regulation D), but they became optional for banks to leverage at the start of the pandemic, as its economic impact became apparent. These charges are still optional today; some financial institutions collect them; others don’t.

Since most people want to avoid fees as often as possible, read on to learn how excessive transaction fees work and how much they cost.

What Is an Excessive Withdrawal Fee?

Excessive transaction fees, also called excess transfer fees, withdrawal limit fees, or excessive withdrawal fees, refer to penalties for excessive withdrawals from a savings or money market account. Historically, Regulation D restricted consumers to six “convenient transfers and withdrawals” each month.

Banks and credit unions could start leveraging these fees after as few as three transactions per month, though the regulation specified a savings withdrawal limit of six. If consumers regularly exceeded the regulatory six, financial institutions legally had to take action, like converting from a savings account to a checking account or closing it altogether.

Though Regulation D has changed since the COVID-19 crisis and looks to stay that way indefinitely — meaning convenient withdrawals aren’t capped at six a month — some banks have chosen to maintain the excessive transaction fee.

Recommended: What Is the Difference Between a Deposit vs. Withdrawal

Types of Transactions Considered

Not every withdrawal from a savings account counts toward the transaction limit. Below are the types of transactions that could get you to the six-a-month max:

•   Electronic funds transfers (EFTs), like when you transfer money from your savings account to checking account (or transfer money from one bank to another)

•   Automated Clearing House (ACH) payments, including online bill pay

•   Pre-authorized transfers, like overdraft transfers to avoid overdraft fees

•   Wire transfers

•   Online and phone transfers

•   Debit card and check transactions drawing from the savings account.

Notably absent from this list are in-person withdrawals at banks and ATMs. Such withdrawals do not count toward the transaction limit. You can also move funds from savings to checking at an ATM or with a teller in person without it counting toward your limit.

Worth knowing: Some banks may also impose ATM withdrawal limits.

How Much Do Excessive Transaction Fees Cost?

Though Regulation D previously specified a maximum of six convenient withdrawals, it did not specify the amount of the resulting excess transfer fee. Financial institutions were free to set that amount — and still are today, if they continue to charge excessive transaction fees.

Typically, excessive transaction fees cost between $3 and $25 per transaction. Under the current form of Regulation D, financial institutions must disclose the fee amount (if applicable) at account opening; if the bank changes the amount afterward, it must legally notify you at least 30 days before the change.

If you’re not sure what your bank charges, you can typically find this information on the bank’s website or in the fine print of your account documents.

Recommended: What Are Bank Transaction Deposits?

Why Do Banks Charge Excessive Transaction Fees?

Before the Federal Reserve suspended the portion of Regulation D requiring that banks charge excessive transaction fees, the answer was easy: Banks charged excessive transaction fees because they legally had to.

The federal government created Regulation D to ensure that financial institutions had enough cash reserves available. Though this meant consumer funds were a little less liquid in a savings account or money market account, banks made such accounts appealing to consumers by offering interest on those funds. Consumers who wanted easier access to their money could use a checking account.

Now that the Federal Reserve has eradicated that mandate, some banks choose to continue to charge fees. The reasoning for this decision may vary at each financial institution, though banks generally leverage fees to make a profit (they are a business, after all!).

And remember: The federally imposed transfer limit previously served to ensure banks maintained proper cash reserves; banks still charging this fee may be doing so to discourage excessive withdrawals and thus protect their reserves.

Recommended: Smart Short-Term Financial Goals

Tips to Avoid Excessive Transaction Fees

How can you avoid excessive transaction penalties? Consider these tips to cut out this common bank fee.

•   Finding a bank that doesn’t charge excess transfer fees: Some banks do not charge excessive transaction fees.

•   Using your checking account: Banks may leverage fees when you make too many savings withdrawals by swiping a debit card, writing a check, or paying bills online. Rather than using your savings account for such transactions, you may benefit from using a checking account, where such fees don’t apply, and making withdrawals from the cleared funds in that account.

•   Banking in person or at ATMs: Withdrawals at physical bank branches and ATMs typically don’t count toward your limit. By using these options to take funds out of your savings account (or money market account), you should be able to avoid excessive withdrawal fees. Just keep in mind that there may be ATM withdrawal limits in terms of how much you can take out in a certain time period.

•   Making fewer (but bigger) withdrawals: If you’re able to anticipate your needs throughout the month, you may be able to make one or two big electronic funds transfers from savings to checking each month, rather than several smaller ones. Doing so may mean you can avoid excess transfer fees.

•   Opting out of overdraft coverage: If your savings account is tied to your overdraft program and you overdraw too many times in one month, you could wind up paying an excessive transfer fee. You can avoid this by opting out of overdraft protection (though it’s crucial that you understand what that means for your checking account if you overdraw). Or you might tap a line of credit (say, by using a credit card) as the source for your overdraft protection instead of your savings account.

•   Getting bank alerts: Checking your bank account activity is good for several reasons, including fraud monitoring and low balance alerts (to avoid overdrafts). Opting into banking notifications can also help you keep track of when you’re approaching the monthly withdrawal limit.

The Takeaway

Though federal regulations have changed since the onset of COVID-19, many banks and credit unions still charge excessive transaction fees. To avoid such fees, it’s important to monitor your monthly transactions and find other ways to access your savings. For example, you may be able to avoid excessive transaction fees by using ATMs or making fewer, larger transfers and/or withdrawals. Finding a bank whose policies are flexible and suit your needs is a wise move too.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How much are excessive transaction fees?

Excessive transaction fees can typically range from $3 to $25 each, depending on the institution’s policies.

Do all banks charge excessive transaction fees?

Not all banks charge excessive transaction fees. Before signing up for any account, it’s a good idea to read the fine print, including the fee structure. Federal law requires that banks disclose these fees to consumers.

Why do banks charge excessive transaction fees?

Regulation D was initially created to ensure banks could maintain enough cash reserves. Though Regulation D no longer limits convenient withdrawals to six, many banks still charge these fees, potentially to protect their reserves and/or to make a profit.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

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