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Home >> Accounts >> Savings Accounts
About Transaction Limititations on Savings Account
I don't understand why there is a limitation on the number of transactions that can be made on a savings account. Our son has learned the importance of savings and has his pay direct deposited into savings. He moves money to his checking account as a bill arrives, or when he has a copay at the doctor or needs some spending money. He had gone over six transactions for the last few months and the bank has advised they are going to close his savings account. Due to a learning disability, this is the easiest way for him to save and only take out the money he needs. He feels if his pay goes into his checking, he will not know how much to put in his savings and it will be too confusing for him. His goal is to save money. My bank told me "a savings account should not be used like a checking account. Money in a savings account should stay there and not be taken out." I replied that I use my saving account to save money for various things: property tax bills, house and life insurance, vacations, etc. What's going on? This just doesn't seem right. Someone is trying to live within his means and save the best way he can and now they have threatened to close his savings account?
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 The bank is following the law. That is easier to say, than to better control the money supply, the government has imposed certain restrictions on demand deposit accounts and savings accounts, and there are subcategories within those that allow checks to be written on what is really a savings account, and what accounts have ownership restrictions, such as a NOW account. The bottom line is, you can't earn interest on a checking account. Some accounts look like a checking account, but have restrictions. A money market limits third party checks and a NOW account can't be owned by a business.
If funds flow freely from a savings account to a checking account every time a check is written, it is the same as having an interest bearing checking account. Banking regulators look for this and can penalize a bank that turns a blind eye to it, or worse yet, encourages it.
We'd recommend a NOW account for your son. This may be called a "Checking with Interest" or something similar, but it is a NOW/savings account. He can earn interest and still write checks. If he wants a higher yield, when his bills are paid, move excess funds over to the savings.
Published on BankingQuestions.com 2/19/09
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