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Forbes Gets it Wrong About “Online-Only” Bank Accounts

This article was written by in Banking. 9 comments.


This morning an article appeared on Forbes.com with suggestions and warnings about online-only accounts. I have to disagree with an important statement by the author of the article, Asher Hawkins. Hawkins is offering misguided information regarding the number of withdrawal transactions a customer is allowed to make from an account designated as a ” savings” or “money market” account.

Here is the author’s claim:

For some online accounts, known as money market accounts, you’re allowed a maximum of six withdrawals per month, with checks or debit cards accounting for no more than three of them… Choose an online account with the familiar tag of “savings,” and you’ll often get an unlimited number of transactions, which lets you link the online account to other accounts you have in different banks.

This statement is unfortunately incorrect. Accounts designated as “savings” or “money market” accounts are both limited to six withdrawals per month. If you go beyond that limit, the bank may hit you with a warning or a fee, they may prevent the transaction from being processed, or they may close your account. Neither savings nor money market accounts are transaction accounts, even if the bank sends you a debit card or check book to access your money market account. Only transaction accounts such as checking accounts allow unlimited withdrawals.

Savings and money markets accounts are considered deposit accounts, and the banks intend for you to keep the money there rather than use it for spending.

Ask anyone (like myself) who has accidentally scheduled more than six withdrawals from an ING Direct account — an account designated with the familiar tag of “savings.”

There is one exception: the Negotiable Order of Withdrawal (NOW) account. Some banks may offer a NOW account and call it a “money market account,” but this is rare. It is more common for banks to call NOW accounts “interest-bearing” or “high-yield” checking accounts. Check with your bank to determine whether your account is a NOW account before withdrawing funds more than six times within a month if you have concerns.

The article also implies that it is common to find online-only bank accounts that are not insured by the Federal Deposit Insurance Corporation (FDIC). I have never seen a legitimate online savings account based in the United States that is not insured by the FDIC. Usually, a bank provides a link to their FDIC certificate in a prominent location on the bank’s website. This is rarely a concern.

Update: Asher Hawkins, the author of the article in Forbes, contacted me to let me know he has clarified the language in the article. You can see his email in the comments below. We also discussed the strange case of HSBC Direct. HSBC Direct’s online savings account limits transactions to six withdrawals or transfers, except for ATM withdrawals. Savings accounts should not permit more than six withdrawals, including ATM withdrawals, per Regulation D of the Code of Federal Regulations. Therefore, HSBC Direct’s savings account must be a transaction account. If it were a transaction account, however, it would not need to limit non-ATM withdrawals.

Amidst all this confusion, it’s always better to check with a knowledgeable customer service representative if there are any questions about the number of allowed transactions.

Five Highest-Yielding Online Savings Accounts, Asher Hawkins, Forbes, June 10, 2009.

Updated March 29, 2011 and originally published June 10, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 9 comments… read them below or add one }

avatar FFB

Sounds like the author there is new to online accounts. Thanks for pointing out this error. I can see many people reading the Forbes article as an authority, expecting to be able to have unlimited withdrawals on their savings accounts.

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avatar Steve

Technically, a bank could establish an online-only account that allowed unlimited withdrawals – it would just not be defined as a “savings deposit” under Regulation D and the bank would need to reserve against the account (i.e. it would be a transaction account – like a checking account). Banks must reserve against transaction accounts, meaning the bank must keep a fraction of the customer’s money in account rather than lending it out to other members. The Regulation D restriction indicates that in order for an account to be defined as a “savings deposit” the bank must restrict transactions. Those restrictions are, conveniently, located in a footnote in Regulation D:

“4 In order to ensure that no more than the permitted number of withdrawals or transfers are made, for an account to come within the definition in paragraph (d)(2) of this section, a depository institution must either:

(a) Prevent withdrawals or transfers of funds from this account that are in excess of the limits established by paragraph (d)(2) of this section, or

(b) Adopt procedures to monitor those transfers on an ex post basis and contact customers who exceed the established limits on more than an occasional basis.

For customers who continue to violate those limits after they have been contacted by the depository institution, the depository institution must either close the account and place the funds in another account that the depositor is eligible to maintain, or take away the transfer and draft capacities of the account.

An account that authorizes withdrawals or transfers in excess of the permitted number is a transaction account regardless of whether the authorized number of transactions are actually made. For accounts described in paragraph (d)(2) of this section, the institution at its option may use, on a consistent basis, either the date on the check, draft, or similar item, or the date the item is paid in applying the limits imposed by that section.” 12 C.F.R. 204.2(d)(2).
http://tinyurl.com/ja2b5

Thus, the bank could decide to offer an “online-only” account that looked to the customer like a savings account and paid a high-yield but, behind-the-scenes, was actually a transaction account. However, the fact that a bank would need to reserve against the money might lower the APYs it would be able to offer.

My first comment here – but I’ve noticed a tread with bloggers providing general links to a main page (or no links of attribution) rather than a direct link to the news story they reference. Here is a link to the Forbes story mentioned: http://www.forbes.com/2009/06/09/highest-yielding-savings-accounts-personal-finance-online-savings-accounts.html

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avatar Luke Landes ♦127,480 (Platinum)

Steve: Thanks for the comment! Your suggestion sounds like a NOW account or interest-bearing checking account.

Regarding the linking, I did include the full link to the Forbes article at the bottom of the post, where I usually list sources when applicable.

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avatar Erica Douglass

Yikes! Thanks for pointing this out. I just fulfilled my “general fund” savings goal, so I was setting up subaccounts for other savings goals, but had no idea ING counted subaccount transfers as part of the 6. I got nailed with a fee from WaMu for this same thing, which is one of the reasons I opened a ING account.

-Erica

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avatar T

Wow – that’s a pretty big goof. I, your random person on the street, could easily have told you that your standard savings account is limited to 6 withdrawels per month.

And being new to online savings accounts doesn’t explain it, either – it’s the standard savings account rules he got wrong!

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avatar Mrs. Micah

Yep, I got a warning this month because between incidental and scheduled transfers, I will hit 6. ING Direct gets big points because when I made my 4th savings transfer (with 2 scheduled transfers left), it sent me a warning letting me know about the rules, the possible consequences, etc.

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avatar Luke Landes ♦127,480 (Platinum)

I just received this response from the author of the Forbes article, Asher Hawkins:

It’s Asher Hawkins from Forbes writing. Thanks for your post today — it prompted me to re-write those lines on transaction limits, and hopefully they’re much clearer as a result. Please take a look at the new language when you have a chance.

As far as FDIC coverage, I’d still recommend folks do their homework before making a deposit.

I hope you’ll keep reading my pieces with a critical eye! And feel free to cut-and-paste this message as a comment to your post.

The re-written section of the article corrects the misunderstanding about the six-withdrawal limit.

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avatar Paul

Hey Flexo,

I had a somewhat related question for you about my HSBC online payment account since you seem well versed in banking rules. I got a “bankmail” letter on my account page a few days ago that said:

“Effective June 14, 2009 your available balance will immediately change when a Bill
Payment is processed (future dated payments are not processed until the scheduled
billing date) for all payment methods. This will better assist you in managing
your finances and will enable us to forward your payments in the most efficient
manner to your payees.”

Now, I was taken aback by this because I had never heard of a bank withdrawing funds essentially when a check was written instead of when it was cashed, so I wrote for clarification and received the following response:

“[Y]our Online Payment Account will not earn any interest on the payments from the scheduled date [to send the payment]”

This sounds like total BS to me, and I can’t believe I haven’t heard rants about this on the financial blogosphere. Have you seen any other banks doing this lately? They are essentially stealing the interest from us between when we send a check and when the recipient cashes it. Remember, this is an online payment account that doesn’t give you real checks, so this bill-pay service to send checks through HSBC is the only option we’ve got. Also, what do you think about the legality of such a move?

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avatar Luke Landes ♦127,480 (Platinum)

Paul: Thanks for the question! I’ll look into that and post something in a few days.

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