If you’re exploring savings accounts, retirement funds, or private banking for the first time, there’s a chance you’ll be aware of the term “non-transaction account.” As the name suggests, it’s an account type you wouldn’t typically spend money from.
There are a few types of non-transaction accounts to choose from, and a few points to remember before setting up your own for the first time. Let’s explore what you need to know.
Non-transaction account: a quick definition
A non-transaction account is a banking product that allows you to pay in regularly, but there are restrictions on making withdrawals and payments from your funds.
Typically, a non-transaction account (also known as a non-payment account) either limits how much you can pay out during a given period or has waiting periods before you can transfer funds.
Some non-transaction accounts allow limited transfers, while others bar them completely. The aim of these accounts, typically, is to help you grow your money (e.g., via savings interest or investment maturity).
If you want to transfer money to and from non-transaction accounts, you’ll typically use the ACH or automated clearing house network. ACH debits and pulls permit requesters to take money from non-transaction accounts, such as in the case of debit agreements.
As FedNow rolls out, presumably most of these ACH transfers will shift to FedNow, but the concept remains the same. You will likely be able to use FedNow to make instant transfers, but not through any other means.
What are the different types of non-transaction accounts?
Typically, non-transaction accounts are those where you’d keep your money safe or grow your funds rather than spend it outright. You wouldn’t normally spend money from these banks, instead using a standard checking account.
Here are a few common examples of non-transaction accounts you might come across.
Retirement accounts
Retirement accounts that focus on saving and growth, such as the Roth IRA, typically restrict transactions before you reach a certain age.
That’s simply because the main idea behind retirement accounts is you “lock away” money until you retire, and thus, withdrawing and spending defeats the object!
In some cases, you can withdraw money from retirement accounts such as IRAs, but there will often be a tax penalty on top. Be sure to read the terms and conditions of your retirement account before you start budgeting to withdraw.
Private accounts
Private accounts and private banking in general typically pitch to high-net-worth individuals who wish to secure large sums of money (such as those arising from investments or from inheritance).
It’s not a given that private accounts will be non-transactional by design, meaning you may be able to withdraw and pay regularly in some cases. However, there may be limits and schedules in place that you need to adhere to. Again, it’s worth consulting your bank.
Fixed-term accounts
You’ll generally use a fixed-term account when investing in specific instruments that have time periods attached. For example, when investing in bonds, you’ll usually be able to withdraw and profit once they fully mature (at a date you agree with your provider).
In these cases, you won’t be able to withdraw or make payments at all – these banks are simply not designed for that purpose!
Savings accounts
While some savings accounts allow you to withdraw up to a certain amount each year (and sometimes with fees attached), they are typically known as non-transaction accounts. You wouldn’t normally use savings accounts to make regular payments as you might through checking, for example.
What are the main differences between transaction and non-transaction accounts?
Non-transaction accounts will usually prevent you from accessing liquid money on a schedule or until a certain point (e.g., when you reach retirement age). Transaction accounts, meanwhile, are designed for regular payments and withdrawals, and provide money for you to use at any time.
In short, you’d use transaction accounts for paying for everyday items and services, and non-transaction accounts for saving money and growing investments (therefore, you’d not usually touch these funds for several years).
What is Regulation D?
Regulation D is a ruling exercised by the Federal Reserve that hypothetically restricts how much money you can withdraw from non-transaction accounts.
As a result of financial difficulties people experienced at the height of the COVID-19 pandemic, the Federal Reserve relaxed Regulation D’s “six convenient transactions” measure, meaning users could now make ACH payments more than six times a month.
Banks aren’t required to follow Regulation D’s measure suspension, meaning you’ll need to check your bank’s individual rules if you wish to access funds.
It’s also wise to check what your bank determines as transactions. For example, these are likely to be ATM withdrawals and direct payments, but not all banks follow the same definitions.
Are there fees required for non-transaction accounts?
Yes, there are usually fees that apply to non-transaction accounts, meaning you might incur charges if you make withdrawals outside of what your bank defines as policy.
For example, you might face penalties if you withdraw or make transactions from a non-transaction account before the date you previously agreed with your bank. This might be as high as 1% in some cases but will vary.
I always recommend you look carefully at the fine print for any banks and accounts – otherwise, you may get caught out by surprise charges completely innocently.
Is it worth setting up a non-transaction account?
Non-transaction accounts are great for securing and growing money. If you need liquid money to spend at any time, you should always refer to checking accounts and/or credit cards if you can manage them responsibly.
Non-transaction accounts carry various benefits, such as financial security, interest income, and maturity perks if you invest in specific bonds and instruments.
That said, not all non-transaction accounts are the same. They will have different clauses and restrictions, meaning it pays to compare different options, too, depending on what your saving and securing goals might be.
A word of advice – just make sure you keep your transaction and non-transaction account separate. If you accidentally mix them up, you could face heavy fees!
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