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.