Why the Fed’s Rule Change to Increase Access to Savings Accounts is a Good Idea

Why the Fed’s Rule Change to Increase Access to Savings Accounts is a Good Idea

Monday, May 11, 2020

Accessing savings just got easier.

At the end of April 2020, the Federal Reserve announced an interim rule change that removes the limits on accessing funds in a savings account. Until recently, savers could withdraw from their savings account up to six times per month—but not more. 

The Fed cited the economic events related to the pandemic among the reasons for changing the limit. The limit has long been part of Regulation D, the regulation that governs reserve requirements for banks. 

According to the Fed’s statement, this change will “allow … customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits at a time when financial events associated with the coronavirus pandemic have made such access more urgent.”

Access to Savings is Fundamental

The rule change underscores a key pillar of Emergency Savings Initiative’s (ESI) work, which is to make savings more accessible for every person who needs to reach their cash savings in an emergency. 

The complexities of implementing and communicating the prior rule for accessing savings accounts, especially for small-dollar savings, were burdensome and provided an unnecessary hurdle for both providers and savers. As noted in the US Financial Diaries, people are often ‘saving for soon’ and limitations on accessing funds is both a logistical and psychological burden.

Commonwealth, one of the industry experts working with ESI, has long supported the rule change. When it comes to designing savings products and services, ensuring that liquidity is a primary goal is key for serving lower- and moderate-income people.

“For emergency savings to be effective, people must be able to draw from them to combat income volatility and unexpected expenses — particularly essential during this unprecedented and uncertain time,” said Nick Maynard, Senior Vice President at Commonwealth. “This rule change allows more liquidity and ability to draw from savings as needed–the very purpose of liquid savings.”

The Financial Health Network, an ESI industry expert, has also voiced the need for liquidity as essential for navigating financial emergencies. “In times like this, liquidity becomes a key need for many,” David Silberman, Senior Advisor, Financial Health Network, said in a May 5 op-ed American Banker

A Recent Surge in Savings

Early data from both fintechs and traditional financial institutions, show that interest in savings accounts has surged following the start of the pandemic. Qapital, a mobile banking app, reported a 500% increase in savings goals in between February and end of March 2020, according to Common Cents Lab, another ESI industry expert that has partnered with the fintech on behavioral research.

A report written by the Bureau of Economic Analysis and released on April 30 showed a big jump in the national savings rate, jumping to 13.1% in March compared to 8% in February. 

With unemployment claims surging and continued volatility in the markets, uncertainty about the future could be driving the push for greater cash savings. More than half of Americans believe their personal or household finances will be affected by the pandemic for 12 months or more, according to an April 25 report from McKinsey.

With the Fed’s rule change, Commonwealth and Financial Health Network are calling for banks to ensure that customers are made aware in a timely manner in addition to taking other actions to help their customers manage their money during this time.

“We encourage banks to enact this change in their policies as soon as possible to allow customers to react to the economic impact of COVID-19 on their households,” Commonwealth’s Maynard said.

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million commitment to help millions of people living on low- to moderate-incomes gain access to and increase usage of proven savings strategies and tools—ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by their Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multi-layered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step towards long-term financial well-being.