Twenty-five percent of Americans have no savings accounts. An equal number of Americans have a savings account but have less than two months' worth of expenses stashed away in it.
Together, these statistics paint a frightening picture of potential financial instability. It's no surprise, then, that government authorities and individual banks look for ways to motivate deposit account holders to get better at saving. Their methods, however, can be a huge and unwelcome surprise to unprepared account holders.
Keep reading now to learn what an excess activity fee is and what you can do to avoid the unhappy experience of being hit with one.
Concerned with ensuring that banks had enough money on hand to meet demands for customer withdrawals, the federal government set out to find ways to ensure banks would meet these obligations. They decided to take a simple approach. They would make it easy to put money into a savings account or money market account and hard to take money out.
To this end, the Federal Reserve Board passed Regulation D. Regulation D says that Americans:
These penalty fees are called excess activity fees. They may also be referred to as:
Regardless of what they are called, the fees are meant to prevent Americans from depleting the cash reserves at a bank.
Since excess activity fees are mandated by federal law, they apply to all savings and money market accounts. The law leaves individual banks and financial institutions leeway in how they enforce the fees, however.
Banks can choose to begin applying the fees at as few as three withdrawals per month or may wait until the regulatory six. Fees can range from $5 to around $30 per infraction. Institutions can also choose whether they count by calendar month or by monthly statement cycle.
It is essential, then, to check the account agreement on each of your accounts as they may vary widely.
Most transactions that result in money being withdrawn from or transferred out of your savings account count toward your monthly limit. This includes:
Some financial institutions make exceptions and do not count transactions toward the monthly total if you:
These exceptions are not universal. Account-holders need to review the terms of their accounts to ensure they understand what is and is not counted by each bank.
In all cases, once you have reached your maximum allowed number of withdrawals, each additional withdrawal within the same month will earn a new fee. This can lead to fees piling up rapidly.
To get a better idea of the variations between banks, here are a few of the top U.S. banks and their average excess activity fees for comparison.
Legally, banks are also entitled to take action when account-holders repeatedly surpass the six transfer limit. A bank may convert the account into a checking account with all the associated fees and potentially a few new ones to include monthly maintenance fees or monthly service fees which require a certain daily balance or direct deposit requirements to avoid. Alternatively, it may close the account entirely.
There are many simple habits Americans can use to avoid going over their six-transaction limit each month.
Applying even a few of these good money management habits can protect you from pricey excess activity fees.
When trying to avoid excess activity fees, some account-holders go too far in the other direction. They may go months or even years at a time without touching their savings accounts at all. Unfortunately, this can result in an inactivity fee.
Not every bank levies inactivity fees. Those that do charge an average of $5 to $15 per month that the account is not touched after it reaches "inactive" status. Inactive status may kick in after six months or a year.
In most cases, simply making a deposit or withdrawal is enough to reactivate the account and avoid further fees. But accounts that are not reactivated after an extended period of inactivity fees may be closed by the bank.
Thus it important to establish healthy banking habits that keep your account active without too many transfers each month.
Building healthy money habits starts with educating yourself on the modern financial world. Now that you know how to avoid getting hit with an excess activity fee or inactivity fees, check out our blog for more great ways to build wealth and establish strong money habits or check out our automated fee negotiator to get your excess activity fees refunded within a few business days.
Harvest helps increase the net worth of the 99% through artificial intelligence and financial automation. To date, Harvest has refunded over $2M in bank fees and interest charges to its members with the ultimate goal of increasing the net worth of everyday Americans by $1 trillion by 2030. Our platform starts with providing immediate relief through bank fee and interest charge refunds, orients a member's financial health with our proprietary PRO Index™, and keeps track of net worth over time aided by our suite of financial tools. Check out our 8-step guide on "How to Build Wealth from Nothing" to get started on increasing your net worth.
Disclaimer: Harvest is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.